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Scholarships - Taxable?

Flip138Flip138 Posts: 29Registered User New Member
edited January 2012 in Financial Aid & Scholarships
I'm trying to figure whether or not scholarships and grants are supposed to be taxable, and if I would be required to report this in my FAFSA and file my taxes. I didn't work last year, so I thought I didn't need to fill out a tax form. According to the W-2 from my college, my amount billed for tuition and related expenses was $40195, and my total scholarships/grants was $37601.
I do not have to report any taxable income on the FAFSA, and I don't have to fill out a tax form, right?
Post edited by Flip138 on
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Replies to: Scholarships - Taxable?

  • LMDBLMDB Posts: 23Registered User New Member
    I'm not sure I can answer your question specifically for your circumstances, but I can tell you about my experience. I will distinguish between Federal and State Taxing authorities. Federally, any scholarship income over and above tuition, certain fees and books is considered taxable. That is, any amount you receive that pays for whatever your college lists as the standard fee and books amount, plus tuition, is free from tax. Other amounts that your receive to help pay for room & board, non-standard fees, travel, fellowships, etc., must be added to your gross income on your federal tax return as additional regular income, and you pay tax on it just as you would on job income. States differ, but mine does not tax any part of any scholarship, no matter what it pays for, even room & board and travel, fellowships, etc. You should consult a tax advisor, or do extensive reading on the irs / your state web sites
  • 'rentof2'rentof2 Posts: 4,327Registered User Senior Member
    Flip, did your college send you a 1098T form? (I think this may be what you're referring to when you say the "W-2 form" sent by your college. You would not be getting a w-2 form unless you are an employee of the college. My son, who is a full-time student, but who also has an on-campus job gets a w-2 for his employment earnings, and a 1098T which shows how much he received in scholarships from the college.

    On the 1098T, there is a box that says "qualified tuition and related expenses" and another one that says how much you received in scholarships money. Any scholarship money you received in excess of "qualified tuition and related expenses" is taxable by the feds. Like LMDB says, that would be money for room & board and other expenses than tuition, mandatory fees, etc. From what you have told us, it is possible that your scholarship amount does not exceed the qualified expenses... but I'm not completely clear the particulars of your situation, so make sure to check this all out for yourself. (It should be simple enough and not require a tax professional.)

    States vary in their treatment of it.
  • entomomentomom Posts: 23,656Registered User Senior Member
    You need to be a little careful about the numbers in those boxes of the 1098T. For instance, D1s school reports tuition for the school year (eg. fall 2009 - spring 2010), but they report the amount of scholarships given for the calendar year (eg. spring 2009 - fall 2009). Some schools report with this kind of disconnect, while others are more consistent. You need to check your FA records to see what numbers they're adding up.
  • 'rentof2'rentof2 Posts: 4,327Registered User Senior Member
    Excellent point, entomon.
  • Flip138Flip138 Posts: 29Registered User New Member
    Yes my college did send me the 1098-T. The "Amounts billed for qualified tuition and related expenses" was $40195, and the "Scholarships or grants" was $37601. However, I am from Oregon but I attend college in Louisiana, so which state should I refer to to see whether I will have to pay state tax?
  • swimcatsmomswimcatsmom Posts: 14,964Registered User Senior Member
    Check with them both.
  • seekingknowledgeseekingknowledge Posts: 631Registered User Member
    entomom: This is exactly what has happend to my daughters. It took me forever to figure out how they came up with the figures! The university included tuition for Summer 2009, Fall 2009, Winterintersession 2010 and Spring 2010 on the
    1098-T (I assume it was because it was billed in 2009). However, the scholarships that cover Winter Intersession 2010 and Spring 2010 were not included (I assume this is because they were not disbursed until January 14th 2010). Do you know how to handle this situation for tax purposes?
  • entomomentomom Posts: 23,656Registered User Senior Member
    There was a thread discussing this a couple of years ago and no one came up with an iron clad, this is the way it should be done. I agree that the likely reason that colleges report things this way is because of when they disperse/receive funds, before or after the calendar year.

    What I decided was to report amounts for the calendar year, for example, spring semester 2009 and fall semester 2009 for the 2009 tax year. This means that I use the scholarship amount as reported on the 1098, but divide the tuition & fees amount in half and add it to half of the t&f amount from the previous year. The reason I decided to do it this way is because I was concerned about what would happen the year following graduation, when the 1098 will report will show 0 t&f (because it all would have been reported the previous year) but would show half of the scholarship amount she got for sr year (because it wasn't reported the year before). I didn't want to have a tax year with that outstanding scholarship amount and no t&f to subtract from it.

    Of course this means that for t&f, my taxes are out of sync with the 1098, but I'm careful with keeping all my records. That's the best I could come up with :(.
  • seekingknowledgeseekingknowledge Posts: 631Registered User Member
    I think I understand what you are saying. So for 2009 lets say the 1098 shows:

    Tuition (which includes Summer & Fall 2009 AND Winter Intersession 2010 and
    Spring 2010): $10.00
    Scholarship (which does not include the 2010 scholarship): $5.00

    I would ONLY report the Summer and Fall 2009 portion of tuition: $4.00 and apply it against the scholarship money from 2009, resulting in a $1.00 of the scholarship being taxable.

    Then when I do the 2010 taxes, I report the Winter Intersession 2010, Spring 2010, Summer 2010 and Fall 2010 tuition and subtract that total from the total scholarship amount. The balance would be taxable for the 2010 return.

    So basically, I am keeping things balanced (matching up the tuition and scholarships). And the year they graduate everything will also be balanced. Spring semester tuition would be matched with the Spring scholarship...even though the tuition was charged to the Bursar account in December of the prior year. That makes perfect sense to me...I hope it does to the IRS!

    One additional question (and I did and will keep looking for the thread you reference), I am getting conflicting information on wether the girls should or can be claimed on our taxes because their scholarships are enough to cover R&B. Have you ran across a thread that discusses this? It is becoming clear that my tax advisor sees as much grey area as I do....Thanks!
  • entomomentomom Posts: 23,656Registered User Senior Member
    Yes, that's what I'm doing. You're working on the quarter system and mine is semester, but that's right, I'm keeping the t&f and the scholarship money linked for each term even though part is reported on a 1098 from a different year.

    D1 is a transfer student who was on a full tuition + R&B scholarship her fr year and I did claim her as a dependent that year. Here is the relevant thread from a reliable CC member, taxguy:

    http://talk.collegeconfidential.com/parents-forum/57955-tax-aspects-scholarships-fellowships.html

    Look on page #14 of Publication 501, under "Support Test (To be a qualifying child)" there is a special part about scholarships:
    Scholarships. A scholarship received by a child who is a full-time student is not taken into account in determining whether the child provided more than half of his or her own support.
  • entomomentomom Posts: 23,656Registered User Senior Member
    I went back through my posting history and found the thread about how to deal with the discombobulated 1098s:

    http://talk.collegeconfidential.com/financial-aid-scholarships/648538-please-help-1098t-loans-etc.html

    Looks like the consensus of rational CC members (but not necessarily the IRS :rolleyes:) was to do it the way I described above.

    Best of luck, I'm finding it more difficult to do my Ds taxes than mine these days!
  • seekingknowledgeseekingknowledge Posts: 631Registered User Member
    Thank you entomom...I appreciate the help!
  • entomomentomom Posts: 23,656Registered User Senior Member
    Bumping this thread because I'm working on taxes today in preparation for FA later this week.

    Every year I have to remind myself how to interpret the 1098-T since D1s school reports Tuition & Fees and Scholarships/Grants according to the school and calendar years, respectively. Fun, fun, fun!
  • patsmompatsmom Posts: 3,027Registered User Senior Member
    I've been working on taxes today, too, in TurboTax and I found the interview portion dealing with the 1098-T to be more helpful than in prior years. Or maybe I'm just getting to where I understand it better after 7 years of filling out the darn thing.

    Last year I made a spreadsheet with the pertinent figures and the formulas for the deductions after I figured out what the tax forms were looking for (did this with a lot of help from Pub. 970). This year, all I had to do was plug in the numbers for 2010 to come up with my deduction. I don't have the 1098-T yet but I used estimates -- it was pretty easy to figure out what numbers to use.
  • entomomentomom Posts: 23,656Registered User Senior Member
    I'm using TT too and did the same thing with figuring out my numbers using the FA information from the school's billing statements. I just hope whatever school D2 attends doesn't use different years for reporting tuition & fees vs. scholarships/grants on the 1098T.

    The only complication this year is that D1 got FA and grant money to do research abroad last summer. Since it was research and not a program, I don't see any tuition, fee or book costs; only travel, room, board and some payments to the hospital where she worked, and I don't think she can claim any of these as educational expenses. This means she'll be paying more taxes and I won't be able to get an educational credit this year, but that's the (relatively small) price of 'free' money I guess ;).
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