The total tax revenue from scholarships has grown exponentially in the last three years, according to IRS tax statistics.
College Scholarships May Be Taxable
The portion of a scholarship that is used to pay for room and board, transportation and other living expenses is treated by the IRS as taxable income.
Use our Scholarship Tax Calculator to figure out the taxable amount of your scholarships and calculate how much you’ll have to pay in taxes. Amounts used to pay for tuition and textbooks may be tax-free, but amounts used to pay for living expenses are taxable.
Scholarships are the only form of generosity that is taxable to the beneficiary. For example, services provided by a homeless shelter or soup kitchen do not represent taxable income to the recipient. But, a scholarship that pays for housing and a meal plan is taxable to the student.
Scholarship Can’t Help with Campus Coronavirus Evictions
Scholarship providers also hesitate to provide scholarships to cover room and board because it places their tax-exempt status at risk.
Thus, scholarship providers are unable to help college students who have been displaced from their college dormitories because of concern over the novel coronavirus.
Shocking Growth in Taxes on College Scholarships
As shown in this table, taxable scholarships totaled $2.86 billion in 2017, up from $325 million in 2015.
The number of taxpayers paying taxes on college scholarships has increased from 44,016 in 2015 to 703,682 in 2017, a 16-fold increase.
Two thirds (68%) of the taxpayers filed a 1040A or 1040EZ, suggesting that the majority of families who pay taxes on their college scholarships are low-income.
Scholarship Tax Contributes to Student Debt Crisis
The taxation of scholarships contributes to the growth in student loan debt. Students cannot reserve a portion of their scholarships to pay for taxes on the scholarship, so they are forced to borrow to cover the tax liability.
Taxable scholarships are taxed at the parent’s tax rate under Kiddie Tax rules.