If you’re sitting in your chair right now wondering if your scholarship is tax refundable or not. Well it depends. In many cases it is, while in many other cases it isn’t. When filing your tax return at the end of the tax year, it is crucial for you to know if you have to pay for your scholarship or not, because in many cases, since all grants, fellowships, and scholarships may be counted as income, it automatically becomes taxable. If you want to know more about whether to claim your scholarship in your tax returns or not, then keep reading.
Scholarships that are tax-free
Not all scholarships fall under the income category. There are some scholarships that are tax-free, and those scholarships have the following features:
- If your scholarship is for a degree at institutions that are primary, secondary, or post-secondary. The institutions need to be accredited, and in this case, it doesn’t matter whether you are a part-time or full-time candidate.
- This scholarship needs to cover all of your educational expenses, such as the books, fees, equipment, and supply costs for all of your courses.
- The scholarship needs to cover the fees and the tuition to attend or to enroll in an educational institution.
Scholarships that are taxable
If your scholarship covers the expenses of any of the following mentioned below, then it is taxable:
- Travel expenses
- Research expenses
- Board and room expenses
- Any expense that is not required for the attendance or course, such as equipment, supplies, fees, or books
- Clerical help expenses
If your scholarship covers both your board and room and tuition expenses, then the amount that you use only for your tuition is free of taxes and only the board and room fees are taxed. These are some of the things that you need to adjust while filling in your tax return. So you might want to check other portions of your form for changes as well.
An example of this would be, for those filing for a deduction for the educational expenses, they will have to reduce the deductible amount according to the scholarship’s tax-free amount. Also remember that if your scholarship pays for any item that might be required for the course or for its attendance, then the amount will be deductible.
Filing the taxes properly
If your scholarships are tax-free, then great! You won’t need to worry about adding it to your tax returns. However, for those who have a taxable scholarship, even if it is just a part of the whole, it need to be recorded properly.
If you don’t know how to properly file your tax reports or need help, refer to this website http://www.fastweb.com/financial-aid/articles/should-i-claim-scholarships-and-other-awards-on-taxes If you’re still unclear about what to do, you can always contact the sponsor of your scholarship, and they might be able to tell you more about whether your scholarship is taxable or not.
It is best to ask any tax related questions regarding your scholarships as early on as possible, as your sponsor might be swamped with questions as such at the end of the tax year.