Your scholarship may or may not be taxable. Generally speaking, a scholarship or fellowship is tax free if you are a degree candidate and the award is used to pay for tuition and required fees, books, supplies and equipment, however there are some scholarship and fellowship opportunities that are not tax exempt. Any amount used to pay for room and board or a stipend for living expenses is taxable. There are also a variety of coordination restrictions that are intended to ensure that you don’t double-dip when taking advantage of the Education Tax Benefits.
Relevant IRS Publications
- IRS Publication 970: Tax Benefits for Education
- IRS Publication 17: Your Federal Income Tax
- IRS Notification March 2021: Emergency aid granted to students due to COVID is not taxable
IRS Publication 970 discusses scholarships and fellowships, deducting work-related educational expenses, and the various tax benefits for education, such as the American Opportunity (IRS Topic American Opportunity Tax Credit) and Lifetime Learning Tax Credit (IRS Topic Lifetime Learning Credit), Coverdell Education Savings Accounts (IRS Topic 310 Coverdell Education Savings Accounts), and section 529 prepaid tuition and college savings plans. See also IRS Tax Topic 513 – Educational Expenses and other IRS tax topics of interest to students.
Students whose financial aid application is selected for verification may be required to submit IRS Form 4506-T: Request for Transcript of Tax Return or IRS Form 4506: Request for Copy of Tax Return. See IRS Publication 1577 for more information about filing IRS Form 4506 or IRS Form 4506-T.
International students should also consult the following publications:
- IRS Publication 901: U.S. Tax Treaties
- IRS Publication 515: Withholding of Tax on Nonresident Aliens and Foreign Entities
- IRS Publication 519: U.S. Tax Guide for Aliens
Of these, IRS Publication 901 contains the most important information for international students, as the taxability of scholarships is often governed by specific tax treaties with the student’s home country.
To order copies of these publications, call the IRS Forms Distribution Center or visit the IRS web site.
The legislation governing taxability of student financial aid can be found in IRC sections 117 and 529.