When Do Taxes Become Mandatory for Grant or Scholarship "Income"

[chrissyluckie]

Is my impression correct that you MUST pay taxes on grants or scholarships in excess of expenses for an academic session as reflected by Form 1098T? If Box 1 lists $2,000 in "Payments Made," and Box 5 has $5000 for grants or scholarships, does the $2,500 surplus attract mandatory tax liability? Thanks!

[Hal_Al]

The simple answer is: when box 5 exceeds box 1 by more than $12,200.

Everybody gets a (potential) $12,200 standard deduction, even student-dependents*. So, if you have less than $12,200 total taxable income, you will owe no tax and do not even have to file a tax return

*There is an exception for dependents with investment income (interest, dividends, capital gains and taxable 529 plan distributions)

[DianeC958]

Yes, if Box 1 is less than the amount in Box 5 then the excess amount is considered taxable income.

There are other school expenses that you may deduct that do not appear on form 1098T they are

• Fees the school charges
• Cost of books and supplies for classes taken

By adding these other expenses to your return you reduce the amount of scholarship that is taxable.

Link about Taxes on Scholarships