TAX implications of MERIT awards

[BelknapPoint]

Scholarship or grant money used toward tuition (and other qualified expenses) is tax-free. If the scholarship is unrestricted, and used for other expenses (toom & board, transportation, etc) it is taxable, and generally considered to be unearned income. It would not fall within the $12,000 standard deduction, because a dependent calculates the standard deduction based on earned income.

Wrong. When calculating the standard deduction for a dependent, a taxable scholarship or fellowship grant is considered earned income. See the note at the bottom of table 20-3 on page 144 of IRS pub. 17.

https://www.irs.gov/pub/irs-pdf/p17.pdf