I don’t know the backstory as to why athletic awards are handled differently, but they are. If they weren’t, then the IRS wouldn’t have a separate instruction section for them. Instead, they’d just be listed with the rest.
Athletic Scholarships
An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later.
Worksheet 1-1. You can use Worksheet 1-1. Taxable Scholarship and Fellowship Grant Income to figure the tax-free and taxable parts of your athletic scholarship.
Worksheet 1-1.Taxable Scholarship and Fellowship Grant Income
- Enter the total amount of any scholarship or fellowship grant for 2014. See Amount of scholarship or fellowship grant, earlier. 1.
If you are a degree candidate at an eligible educational institution, go to line 2.
If you are not a degree candidate at an eligible educational institution, stop here. The entire amount is taxable. For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowship Grants , earlier, in this chapter.
- Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. 2.
- Subtract line 2 from line 1 3.
- Enter the amount from line 3 that your scholarship or fellowship grant required you to use for other than qualified education expenses 4.
- Subtract line 4 from line 3 5.
- Enter the amount of your qualified education expenses 6.
- Enter the smaller of line 5 or line 6. This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship grant) 7.
- Subtract line 7 from line 5 8.
- Taxable part. Add lines 2, 4, and 8. See Reporting Scholarships and Fellowship Grants , earlier, for how to report this amount on your tax return 9.