Award vs. Scholarship

TheGFG
Tue, 04 Apr 2006 17:53:47 +0000

How scholarships/prizes are taxed depends on what was done to earn/win it. The IRS website explains various categories of prizes, as does the 1040 book. For example, my 13-year old recently won a “scholarship” prize in an essay contest. The money was deposited by the donor into an educational savings account in her name with us as administrators. If your D needed to provide a social security to the state organization, then they reported the gift to the IRS and she must pay taxes on it. How much in taxes depends on what other income she has earned this year. Children can earn a certain amount (think its $4000) tax free.