Understand this:
All scholarships, grants and 529 distributions received in a tax year are treated as taxable income *INITIALLY*. The taxability of that educational aid is then offset by the *qualified* education expenses they are used to pay for. So if you have any amount of schoarships or grants not used for a qualified education expenses in the same tax year it was awarded to you then that excess amount is taxable income to you *UNLESS* the college did not physically pay it to you and is holding it to apply to your qualified expenses in the next tax year.
