Are College Scholarships Taxable: Tax Rules for Scholarships - YouTube

it's your student bringing in scholarship  money and now you're wondering oh gosh are we  

gonna have to pay taxes on this maybe you're just  wondering do we have to pay taxes on scholarships  

or what are the scholarship tax rules well in this  quick video we're going to cover all of that and  

so much more including how to report scholarships  on taxes tax deductions and towards the end of  

this video i'm going to give you a tip where if  your student is getting to the point where they  

might have to pay taxes how they can reduce them  now if you haven't already make sure that you  

click subscribe because this is just one of many  videos i'm releasing on how to secure a debt-free  

degree for your family hello my name is jocelyn  pearson founder of the scholarship system where we  

redefine paying for college so that we can help  families avoid student loan debt when sending  

their students through college in fact our primary  weapon against student loan debt is scholarships  

now i have to start off with my own story for  this video because i want to show you that  

i have been through almost all of these scenarios  so i actually received six figures in scholarships  

every single year in college i received more and  more to the point where the amount that i received  

not only covered the bill that the university  had on my account but actually i received an  

overage check every semester which means that  they cut me a check for the remaining amount  

of money so i had extra money left over so this  is a pretty good situation and this is what we  

want your student to get to right we want them to  get to where they don't have to worry about where  

the next payment is going to come from they can  actually focus on their degree and their future  

now if you are interested in learning how i got to  six figures where i found legitimate scholarships  

that actually helped pay for my education you  can click the link below to sign up for a free  

training that i'm offering called the six steps  to securing scholarships i'll remind you towards  

the end of the video as well now i actually also  wanted to pull our families in the scholarship  

system about whether or not they paid taxes on  any kind of scholarships now the majority of them  

said no a few of them said we had to report  them of course but we didn't end up paying and  

a few people did say yes so i want to explain what  you'd have to pay when you don't and how to avoid  

it taxes on scholarships are really based on how  the money is used so your student does not have to  

pay taxes on college scholarships if the money is  used on qualified educational expenses so this is  

based on the irs definition you and i would surely  disagree with what is required for an education  

but this includes things like tuition fees books  any kind of equipment and supplies that are listed  

for the courses so anything that is very clearly  on that bill that is required for the course  

work now there's one big expense though that  can be on that bill that unfortunately is under  

the taxable scholarship funds and that is any  scholarship funds used for room and board this  

is a huge hit when it comes to the bill because  room and board can be a huge amount of that bill  

they also don't consider insurances  medical costs transportation utilities  

any kind of supplies that are not required  for a course or any kind of living expenses  

as a qualified education expense therefore any  of those items would require claiming them or  

paying taxes on them if that's what they are for  similarly any money that's spent on sports does  

not count as uh non-taxable so unless the sport  is part of an actual course which is can happen  

there are golf classes etc unless the sport  is actually a course that they're enrolled in  

then those expenses related to sports are not  tax-exempt either now another way that scholarship  

committees sometimes award money or actually  even universities sometimes give money this way  

is by providing it as a stipend for work  in fact actually as a student i had a few  

jobs through the university whether it was as a ta  or a teacher's assistant or a summer job where we  

were working as orientation leaders guiding  incoming freshmen throughout the university  

those jobs often paid me as a stipend amount  versus an hourly wage or something like that  

now unfortunately stipends are considered income  and therefore a student would receive say a w-2  

that they would have to claim on taxes so stipends  are non-uh tax-exempt either so they are taxable  

if it is worded as a stipend or if it is worded  as earned income they're going to get a w-2 that  

they do have to claim on their taxes now some of  you might be thinking well is there a tax credit  

that we can use to decrease this chances of this  the answer is not necessarily a scholarship tax  

credit but there are education tax credits and if  you'd like to see a video explaining what those  

education tax credits are comment below in fact  we have a full lesson on this for our members  

and one of our members went through a 30-minute  lesson and saved over 2 000 on taxes the following  

year because of it so these education tax credits  can be a huge help for families so comment below  

and just say tax credit video please and i  will put that on the list the thing with these  

education tax credits is that they cannot be used  on expenses that were paid for by scholarships  

so in fact actually myself because i had a free  ride i had enough scholarship money to cover my  

entire bill we never got to use these tax credits  because we didn't technically pay out of pocket  

for anything for my education which again is a  situation that i hope that your family gets to  

taxes or not ultimately it's always best to not  have to borrow for paying for college right so  

how are these scholarships submitted when it comes  to taxes so the way this works is the university  

will give you your student a 1098 t form this is  where your student will receive the total amount  

of expenses that that the university charged and  then the difference between that and the money  

that they receive so you'll see one section with  the expenses one section with the money received  

and then that difference if they received more  money than the expenses then that would be what  

would count towards taxes now sometimes we see  scholarships send money directly to a student  

now this is actually a little bit of a gray area  where they can decide if they want to submit a  

1099 form or not but i've seen in the past where  they will submit a 1099 miscellaneous form that  

might be given to your student and if that's the  case then you do want to enter it or at least  

talk to your cpa and see if you need to enter it  now again if they do give money directly to the  

student and it is earned if it is something that  is given in exchange for something for labor for  

work then actually your student should get a w-2  for that and claim that on the taxes so those are  

the three forms that you could be looking at a  1098-t a 1099 miscellaneous or a w-2 depending on  

what the money is used for how it's given to the  student and whether or not they delivered any kind  

of services or labor in exchange for it now i want  to give a quick tip here so as i said earlier in  

my story i did receive enough money to where i had  an excess amount that said i never ever paid taxes  

but i also did work part-time jobs so i think  that if i looked at my taxes from back then  

it's probably that it averaged out to where the  money that i would have received back from the  

the part-time work that i was doing maybe that  compensated for any kind of excess amount it  

is not a huge amount of taxes i again like i  said i never had to pay anything and i got to  

where i had six figures and overage checks every  single semester even though we followed all the  

rules we legally submitted taxes every single  year so an idea here might be if your student  

does get to the point where they may have to pay  taxes where they are getting an overage check  

congratulations by the way uh if they do get to  that situation then maybe and a good idea would  

be to get a part-time job and that way that can  kind of compensate for any kind of overage checks  

that they'd have to pay taxes on it's proven  that students who have part-time jobs during  

college do better anyway so this is actually a  huge life skill a huge opportunity and it can  

give them a chance to save a chunk of change for  when they graduate maybe to buy a rental property  

or whatever it is that they want to pursue with  that money so that is a quick tip on how we can  

reduce the amount that we might end up having  to pay if we are sitting in that situation  

so the question is is it worth dealing  with scholarships and taxes is it worth  

applying to scholarships if they  fall into these taxable categories  

in my opinion the answer is of course it  is because the thing is ultimately there  

is going to be a way larger expense if they  have to borrow student debt to pay for college  

when we're talking about interest when we're  talking about late payments when we're talking  

about just the fact that it takes a student on  average 21 years to pay off student loan debt  

it is a no-brainer that regardless of taxes your  student should be pursuing scholarships that is  

absolutely the better course rather than  worrying about whether or not it's worth  

it now don't forget to comment below if you want  that video on education tax credits and also again  

i mentioned that free training so if you are  curious on how to get started on scholarships  

or where you can find legitimate scholarships with  less competition that your student can apply to  

just click the link below it's a free training  you'll see there are six steps to securing  

scholarships and we will get you started  right away so that's it for scholarships  

and taxes i hope you found this helpful again  click subscribe if you did click thumbs up  

if you found this helpful and don't forget to  comment below i will see you in the next video