Are scholarships taxable?

Question:

Are scholarships taxable?

Answer:

The portion of a scholarship or fellowship used to pay for tuition, required fees and required textbooks, supplies and equipment may be excluded from taxable income in certain circumstances. The student must be a candidate for a degree or certificate and the scholarship or fellowship must not represent fee for services. Scholarship and fellowship amounts used or earmarked for living expenses, such as room and board, are taxable. If the student is not a candidate for a degree or certificate, the full amount of the scholarship or fellowship is taxable, even if the student uses it for tuition.

If the scholarship or fellowship is provided in exchange for services performed by the student or someone else (e.g., a parent), it is taxable. There is an exception, however, for certain scholarships for the health professions and for tuition waivers and reductions for teaching and research assistantships.

Note that the full amount of a scholarship or fellowship is exempt from FICA taxes, such as Social Security and Medicare taxes, even if the student is not a candidate for a degree or certificate.

Visit www.edvisors.com/taxes/ for additional information.