If my son gets a merit scholarship for college, do we (or does he) have to pay tax on it? If so, when?
Question:
Answer:
the only time you would have to pay tax on scholarships is when you are receiving sooo many that you end up getting a check from the school, thus making it a source of income.
"getting a check from the school" is not to be confused with a credit balance refund check because of a student loan.
it's very rare that a student receives more gift aid (scholarships and grants) that covers all of his or her college charges, but it does happen. in that case, and that case only, would you pay tax on it :)
i hope your son gets the scholarship, and many more :)
http://sfa.osu.edu/howitworks/index.asp?...
This is Ohio State University's FAQs about the same topic.
http://www.irs.gov/pub/irs-pdf/p970.pdf...
This ia a link to IRS Publication 970 about Scholarships, grants, fellowships (Page 6).
It depends how you use the scholarship. According to Publication 970, room and board (dorm), travel, research, clerical help, and equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution do NOT qualify as education expenses and therefore taxable.
The following are considered qualified education expenses:
1) Tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies;
2) Equipment that are required for the
courses at the eligible educational institution. These items must be required of all students in your course of instruction.
These are qualified ONLY if your child is pursuing a degree, for example Bachelor's degree or higher. And payments used for any expenses are tax free only if the terms of the scholarship or fellowship do not PROHIBIT the expense.
So it depends on the terms of the scholarship. Check the terms of your scholarship. If it states that it CAN be used for other purposes, such as room and board, OR it states that it cannot be used for tuition or course-related expenses, THEN all monies from scholarship is taxable.
Scholarship is only TAX FREE IF scholarship terms require that it CANNOT be used for non-qualified education expenses such as room&board (dorm), and that you CAN use it for tuition & fees and course-related expenses such as equipment required of ALL students in the course.
You should read Publication 970, it gives you more details and explanation.
If the scholarship is taxable, you pay the tax when you file your tax return. For example if you got the scholarship last year in 2006, then you have to file it this year before April 2007. If you got it this year, file for it next year 2008. And when you do file, ask your tax advisor about the scholarship to make sure that they are taxable or tax free. And always keep every paperwork for tax records.
You pay the tax if you claim him as dependent on your tax return. Student dependents is a child who during any part of 5 calendar months of 2006 was enrolled as a full-time student at a school and must meet the qulaifying child and dependency status. Page 19 of the link. http://www.irs.gov/pub/irs-pdf/i1040gi.p...
He pays it if you DO NOT claim him as dependent on your tax return.
Hope you didn't get more confused:) Good luck.
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