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Tax Rules For Scholarships (Are Scholarships Taxable?) How To Report Scholarships On Your Tax Return - YouTube
Channel: Money and Life TV
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hey guys welcome back to money in life
TV my name is Mike this is my sidekick
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chipper I know many of the subscribers
and viewers of this channel are in
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college or are about to attend college
so my goal today is to help you
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understand when you have to pay tax and
when you don't on your scholarship and
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grant money and that's the goal for this
video if you guys enjoy the video and
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get something out of it don't forget to
hit that like button now let's get
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started
alright guys this is a really cool topic
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and a lot of people get scholarships and
first of all I just want to talk about
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scholarships and grants and say if you
were able to get one congratulations
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that is fantastic news for you my friend
because that is less money that has to
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come out of your pocket to get a higher
education less money that has to go
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towards student loans so less debt for
you so congrats on getting those
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scholarships and really it's one of if
you can get scholarships ladies and
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gentlemen it is by far the best way to
pay for a school in my opinion it is one
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of the best ways much more effective
than working to pay for school if you
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don't have to I work to wait my way
through to school but if you can get
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scholarships like I said that is your
golden ticket!
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so let's talk about right now let's talk
about scholarships and grants now I
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thought I should sit down for this one
because I have some visuals on screen
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and I want to show you and just so you
know the vigil you're looking at right
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now on screen is publication 970 now
this is like the Bible for education tax
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deductions so make sure to check it out
all of the information from this video
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is coming from here so make sure to read
more about scholarships and scholarships
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are all in this chapter 1 of this
publication and I'm going to leave a
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link down in the description section
below this video
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so you can go check this out for
yourself just in case there's a question
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I I missed or didn't cover I mean I'm
gonna try to cover some of those guys
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obviously there's a lot of information
on scholarships so feel free to ask
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questions or leave comments down below
as you watch this video if you're
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uncertain of what a scholarship or a
fellowship grant is it's basically a
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scholarship is generally in the mountain
paid or allowed to or for the benefit of
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a student whether an undergraduate or
graduate add an educational institution
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to aid in the pursuit of his or her
studies so that's basically what
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scholarship is so now let's take a look
on screen of a table I made in Excel
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that I feel breaks out the main
differences between taxable scholarships
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and non-taxable scholarships the truth
is is that you might get a scholarship
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that is partially tax-free and part of
it is not tax-free so it just depends on
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what expenses you use it for so let's
look at that right now so let's start
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with taxable scholarships let's I think
that's a good place to start everything
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that's taxable is on the left-hand side
the grant our scholarship is taxable win
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money is received
but student is not pursuing degree so
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you apply for the scholarship you write
this awesome paper or somehow you come
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into this money but you're not a student
well then all of that is like income to
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you and you have to report it on your
tax return as wages the next area when
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it's not tax-free is for when grants
relate to payment for services so a lot
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of times a person in order to get the
scholarship or grant they have to do
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something at the university they have to
work as a teacher at that University are
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they assist in research at you know
thirsty it could be a variety of other
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things too but if you are getting money
from Grants and scholarships for that
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specific purpose the portion that is for
services the part you got for actually
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doing work as a teacher or doing
research for example that is going to be
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taxable and what they're gonna do is if
they're doing it correctly is they're
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gonna send you a w-2 to report that
amount of income on your tax return just
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to specify the amount of money you got
paid for services is will be on that W
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tube okay the next area when it's
taxable amount to use for anything other
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than tuition fees and other qualified
education expenses so all of us probably
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know somebody who came into a lot of
scholarship money our grant money and
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what did they buy they went and bought a
car with it they didn't spend it on
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school or higher education qualified
higher education expenses no they went
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out and bought stuff money that they
received on that scholarship since they
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did not use it for educational purposes
it's gonna be all taxable income to them
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and of course any amount of scholarship
or grant money that you receive that
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exceeds qualified education expenses and
this is to my understanding the year in
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which you receive the money so if you
have more scholarship money than
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education expenses the amount that
exceeds the your education expenses
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let's say you're let's say you received
$5,000 in scholarship money but you only
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had three thousand dollars in education
expenses that means two thousand of that
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is gonna be taxable income to you
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all right let's look at some examples of
wind scholarship money will not be
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taxable to you and that's of course a
real obvious one right is amount so when
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you use the money for tuition fees and
other qualified education expenses if
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you don't know what qualified education
expenses are I have a whole video on
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that I'll link it up in the description
section down below so make sure to check
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it out then also it's not taxable win if
reduced tuition received by student for
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teaching or research activities that
were not considered payment for services
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so it's okay if you work at the school
and get tuition reductions as long as
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it's not payment as long as it's not
considered payment for services you
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should be fine it's also not taxable if
the amounts received by degree
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candidates from National Health Service
corporations or Armed Forces scholarship
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programs for tuition fees books supplies
and equipment
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even if it's for services so if you're
in the military or if you meet one of
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these requirements where you're in the
National Health Services Corp even if
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that money you got for scholarships is
from services and they say hey you still
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non-taxable to you because you served
our country and that's that's the best
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situation you can have in that scenario
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alright guys I know it's not on here but
so let's say now often scholarships come
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out and they're earmarked for certain
things it could be earmarked for your
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personal living expenses so based on the
terms of the scholarship you have may
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determine also if it's taxable or
non-taxable so sometimes people will get
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a scholarship that is strictly for room
and board well any amount just so you
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guys know any amount of scholarship
money that you use for room and board is
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not tax deductable and will be included
in your income okay so any scholarship
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money that you use for personal living
expenses is gonna be taxable to you now
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as I mentioned earlier in this video is
that it's probably it's more than likely
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that part of your money scholarship
money is going to be taxable and part of
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its not so in the publication there's a
worksheet that's going to help you
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determine how much of your scholarship
income is taxable versus how much is not
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taxable and you'll just work your way
through the worksheet to determine that
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and keep this as a work pay after you
filled this out keep this as a work
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paper for your tax documentation for
that tax year
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so you might be wondering well Mike if I
have taxable scholarship income does
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that mean I have to file a tax return
for myself the answer is maybe so if you
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if you don't work at all you know some
people work but if you don't work at all
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and just have some taxable scholarship
income you might have to file a tax
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return on that so I'm gonna link up a
publication for you to check out to
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determine the income finding
requirements and I can tell you that if
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somebody's claiming you as a dependent
then it's going to be a right around
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$6,000 anything above that is when
you're gonna have to file so make sure
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you look at that publication I linked up
down below and check out the rules for
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filing your income tax returns just to
make sure you're covered you know if you
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work let's say you work at a job and
then in addition to your job income you
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get this extra taxable scholarship
income then more likely than not I'm
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gonna guess you're gonna have to file
because it doesn't take a lot of income
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in order for you to have to be required
to file a tax return now generally when
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you see tax documents of scholarships
it's gonna come to you possibly in a
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couple different forms in one instance
you might see the amount of scholarships
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you received on a 1098-t that's one
place you might see it another place you
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might see it is if you get a w-2
because if part of your scholarship
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money was from wages I mean from
services then you're gonna have a w-2
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that where you have to report that
income on your tax return so you'll see
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scholarship money there show up as well
as wages the other place you might see
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it unfortunately and this is not gonna
be your fault or issue it's because
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sometimes the organizations or companies
issuing the tax documents for
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scholarships don't quite know or fully
understand what they're doing so if they
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issue you a 1099 miscellaneous form with
scholarship income on it that is
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incorrect
they're supposed to issue it on a w-2
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however there's there are gonna be times
when you get it on a 1099 so and just to
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prove what I'm saying the IRS has in
their publication on 1099 s this is what
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they say about scholarships this is for
companies who need to file scholarships
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art this is for companies who need to
send out information on scholarships so
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the rule state says do not use form 1099
miscellaneous to report scholarship or
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file
if grants scholarship or fellowship
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grants that are taxable to the recipient
because they are paid for teaching
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research or other services as a
condition for receiving the grant are
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considered wages and and must be
reported on Form w2 other taxable
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scholarship or fellowship payments to a
degree or non degree candidate do not
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have to be reported to the IRS on any
form so those are the general reporting
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rules so you might however like I said
companies and organizations mess up and
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they send you a 1099 with that
scholarship income on it so if you get
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that then just be aware of that and you
should the correct way to report it is
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on line seven of your 1040 and I'm going
to show you an example right here let me
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come down here so I found an example
online as you would show this as wages
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on this is the first page of the 1040
and you would this little code section
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right here not a code section but this
basically refers to that of these wages
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nine thousand or so dollars of that is
scholarship income in this example so
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and it says right here
this isn't this parts in the publication
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but if you file form 1040 include the
taxable amount in the total on line
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seven if the taxable amount was not
reported on Form w2 which is like a 1099
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right because it's not on the w-2
also enter s CH in a taxable amount on
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the dotted line next to line seven so
that's how you are supposed to report
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your scholarship income and you like it
says right here make sure you enter the
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SCH if the scholarship income was not
correctly reported to you on a w-2 now
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you can also another thing you can do if
you do get a 1099 from whatever company
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it is telling you that you have
scholarship income you can contact them
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and say hey this is incorrect
scholarship income needs to be reported
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on Form w2 please correct this and send
me a tax form so don't ever be afraid to
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do that you feel free to contact them
and you can do it that way but if you
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want to file your return before the
deadline or if you don't want to extend
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it then you can also report it here as
well but I'd probably start with trying
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to get them to correct it on their end
so there's no matching issues between
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the IRS database and in what you're
reporting on your tax return all right
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guys that's a brief overview of
scholarship income
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it's taxable when it's not how to report
it on your tax return and the different
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kind of forms and documents you might
see that income reported on so remember
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in general your scholarship money may be
partially taxable it might be not
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taxable at all or it could be taxable in
full it all just depends on how you use
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the money how you receive it why you
receive that money you know is it for
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services is it not for services so those
kinds of things make sure to check out
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the publication on that because there's
a lot more detail in there especially if
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I didn't cover something if there's
anything you feel like a minister if you
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still have questions like I said please
drop your comments in the comment
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section down below I'm more than happy
to respond and I also want to point out
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some links down here to some interesting
articles about scholarship and taxation
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that I feel are worth a read it's
there's some pretty cool articles on
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this that kind of break it down and I
hope you guys found this video helpful
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if you did make sure you smash that like
button share this video with a friend
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especially somebody who's going to
school right now or who has parents who
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have kids in school share it with those
parents because those parents are hoping
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to get as many tax deductions as
possible and I'm sure they'll appreciate
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you sharing this information with them
also be sure to subscribe if you have
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not already because every single week on
this channel we produce new videos that
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are gonna help you improve your
financial position your career and your
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life and we do that by teaching you
personal finances investing and taxes on
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a weekly basis if you guys have any
questions like I said just drop them
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down below I just want to say thank you
to all of you for taking time out of
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your day to watch this video and until
then I love you guys I hope you have a
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wonderful week I hope this stuff made
sense the way I presented this and I
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will see you in the next video
bye all live life on cage
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