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Are University Scholarships & Tuition Aid Packages Taxable?
In most cases, the answer is "No." But if your child received a "full ride," some amounts may be taxable.
Funds from the scholarship that pay for qualified tuition and related expenses to a qualified educational institution for the purposes of obtaining a degree are not included in income. Qualified tuition and related expenses include tuition and fees required for enrollment or attendance at the educational institution, as well as any fees, books, supplies, and equipment required for courses of instruction at the educational institution. Scholarship funds used to pay room, board, meals and other incidental and living expenses are included in taxable income. Most colleges and universities are qualified educational institutions.
Student loans are not included in income and student loan interest can be deducted up to $2,500 a year. If a student loan is partly or wholly forgiven, however, the amount forgiven by the lender is generally included in income.
If you or your spouse is or was an employee of the school, your child may be entitled to reduced tuition. If so, the amount of the reduction is not taxable as long as the tuition is not for education at the graduate level.
There can be all sorts of complicating factors in assessing whether a particular scholarship will be taxed, such as the treatment of work-study scholarships, educational sabbaticals, scholarships paid by an employer, and stipends to cover the tax on the non-tuition portion of attending a university. If you need additional assistance in determining the taxability of scholarships funds, please contact our office.
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Each entity or individual's situation is unique and should be analyzed based upon all of the laws and regulations that exist at the time of a decision. Although we try to send current and accurate information, laws change and can be complex. The information presented in this e-mail should not be construed as legal, tax or accounting advice. You should consult with Angle, Zaebst, & Associates CPA's or other professionals familiar with your particular situation for advice concerning specific tax or other matters before making any decision.
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