Scholarship

[Eileen 1]

Hi all,

I'm very excited to be receiving a scholarship as a graduate student, but unsure about the specifics of what I am required to report. I know that any portion of a scholarship not directly used for qualified expenses (tuition, books, fees) is considered taxable, and I need to report it as income. But I have a few specific  questions:

I receive half of the scholarship in the fall semester, and the other half in the spring - so, over 2 different tax years. To keep the math simple, let's say I receive $5000 in the fall semester, and spend $2500 up-front on tuition and fees that I pay in my student account. I receive the other $2500 as a refund to my personal bank account.

• Do I have to report all of this $2500 refund as taxable income, OR should I keep track of how much I spend on books and other qualified expenses, and report any leftovers after THAT as taxable?
• AND, what if I plan on using that leftover money for future tuition/fees/other qualified expenses? Do I still have to report it as taxable if I am not spending it on tuition during that specific tax year?

And, since I receive the other half the following spring, in a new tax year - whatever the correct answer is for fall, do I do the same thing in my taxes the following tax year for the spring disbursement?

I appreciate any professional advice and answers. Thanks so much. 

[Hal_Al]

Q. Do I have to report all of this $2500 refund as taxable income, OR should I keep track of how much I spend on books and other qualified expenses, and report any leftovers after THAT as taxable?

A.  Keep track of how much you spend on books and other qualified expenses, and report only leftover money as taxable.

Q. What if I plan on using that leftover money for future tuition/fees/other qualified expenses? Do I still have to report it as taxable if I am not spending it on tuition during that specific tax year?

A. Yes.  The money is taxable in the year you receive it, unless you spend it on qualified expenses in the same year. 

Q. Do I do the same thing in my taxes the following tax year for the spring disbursement?

A. Yes. For taxes, it's all accountable by calendar (tax) year, not by academic year. 

[Eileen 1]

Thank you so much!

[Carl]

@Eileen 1 Just keep this in mind, and it helps one to keep things straight when it comes to taxes.

Colleges work in academic years. The IRS does not. So the reality is, it takes you 5 calendar years to get that four year degree. With that said and with very few exceptions that I'm aware of:

 - Scholarships, grants, 529 distributions are reported as taxable income (initially) in the tax year they are received. It does not matter what tax year that money is "for". (Taxability is offset by the qualified expense the money is used to pay for.)

 - Qualified education expenses are claimed/deducted in the tax year they are paid. It does not matter what year is paid "for".