Are excess scholarship funds considered earned or unearned income when determining if tax return is required?
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Are excess scholarship funds considered earned or unearned income when determining if tax return is required?

Scholarships are not in either definition, so what if earnings from work are below the threshold for filing, but adding in excess scholarship funds would put it over the threshold?  Is a tax return then required?

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Are excess scholarship funds considered earned or unearned income when determining if tax return is required?

The real question is : Is it taxable or not. See below to determine the answer.

Did you get a W-2 or other reporting statement? Do you teach or do research in exchange for tuition?

According to the IRS, a scholarship or fellowship is tax free to the extents it doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship. (But for exceptions, see Payment for services in Publication 970).

However, if you’re getting a degree at an eligible school, your scholarship is tax-free when used for:

  • Tuition and fees
  • Fees, books, supplies or equipment required for your courses
  • Any scholarship or fellowship for services received under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program

If you use your scholarship to pay for any of these, it counts as income and the amount paid is taxable:

  • Room and board
  • Travel
  • Any fees, books, and supplies or equipment that are not required for your courses

It doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship. (But for exceptions, see Payment for services in Publication 970).

For example, if you used your scholarship to pay for tuition and room and board, you would be taxed on the room and board payment but not tuition.

 

 

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