A scholarship is a grant of financial aid intended to help fund a student’s college studies. Scholarship money can be tax-free, partially taxable, or fully taxable.
You don’t need to report scholarship money spent for qualified education expenses — it’s considered tax-free income. For these purposes, the following expenses are considered qualified education expenses:
Tuition and books. You can claim expenses for course-related books that you purchase at the school. Books purchased elsewhere, such as at a big-chain bookstore, don’t qualify for the deduction.
Fees, equipment, and supplies. Qualified fees, equipment, and supplies include student-activity fees and expenses for course-related supplies and equipment that you purchase at the school. Equipment and supplies purchased elsewhere don’t qualify for the deduction.
In addition, the expense must be required of all students enrolled in the course.
You can’t claim expenses for room and board, travel, research, clerical help, equipment, or any other cost that isn’t required for enrollment.
You’re responsible for determining whether or not you used the scholarship money for qualified education expenses. If you use any of the money to pay for room and board, travel, or any other expense not required for enrollment, that part of the money is taxable. If this is the case, you need to include the taxable amount on Form 1040 or Form 1040A, line 7, or Form 1040EZ, line 1. Make sure to write "SCH" on the dotted line to the left of the line. If you use the Interview, we’ll make sure the income is reported correctly.
If either of the following conditions apply, the total amount of the scholarship money you received is considered fully taxable income:
Form W-2. If you receive a W-2 form for scholarship or fellowship income, the income is fully taxable and should be included on Form 1040 or Form 1040A, line 7, or Form 1040EZ, line 1.
Non-degree candidates. If you’re a non-degree candidate, you should include the full amount of your scholarship or fellowship in your taxable income, regardless of whether or not you receive a W-2 form. If this is the case, you need to include the full amount of scholarship income on Form 1040 or Form 1040A, line 7, or Form 1040EZ, line 1. Make sure to write "SCH" on the dotted line to the left of the line. If you use the Interview, we’ll make sure the income is correctly reported.
For more information, see these resources: