The number of scholarships offered in America and the rest of the world is increasing every year to help more and more students get their college degrees. The increasing cost of college education has also forced almost all students to look for some kind of financial aid. Financial aid to students is available in form of scholarships, grants and loans. While almost every students is worried about when are scholarships taxable, most of the students looking for scholarships are unaware of the tax consequences of scholarship money they will get. The college aid office do provide guidance on taxability but good quality guidance on taxability is only available from tax professionals that obviously charge a fee for it. In this article I will throw some light on taxability of scholarships.
A scholarship can be taxable by tax authorities when it is regarded as your income. Scholarships can be regarded as your income depending on different factors. The first thing that will affect the taxability of scholarships is the purpose scholarships are awarded for. Scholarships that cover tuition fee or books are mostly tax free, and scholarships that are aimed at paying for living costs are generally taxable. If your scholarship covers both tuition and living costs your scholarships can be partially taxable.
Another factor that affects the taxability of scholarships is the awarding body of scholarships. If the scholarships are awarded by government they may be tax free even if they cover your living costs, accommodation, meals etc Scholarships awarded by private organizations and colleges are mostly taxable. However some organizations may have arranged a tax exemption for you from the government.
Another dimension to are scholarships taxable is the citizenship of the winning person. If the person is a non-citizen in America the scholarship may be taxable even if it covers tuition fee. International students who have won a scholarship can ask the scholarship provider for more information on taxability of their scholarships. Scholarship providers genrally help international students with tax matters.
Most of the time a student gets a scholarship, he will be notified whether he needs to file a tax return or not. The above article sets out general guide lines for taxability of scholarships. For more information students can search for websites by tax professionals that can help them understand tax consequences of their particular scholarship. There are a lot of sites on the internet that provide free guidance on tax matters.