Education Tax Credits and Scholarship/Fellowship Taxability

Taxability of Scholarships and Fellowships

  • NOTE: The tax implications of education expenses vary significantly depending on the particular circumstances of each student.  The University strongly encourages students and parents to consult with a qualified tax advisor and to refer to official IRS publications for information about 1098-t formseducation credits and other tax benefits for education. In all cases, when claiming a tax credit or deduction, the taxpayer's financial records serve as the official supporting documentation for calculating the amount being claimed.

A scholarship or fellowship received by a degree candidate at an accredited institution will be considered a "qualified scholarship" and not taxable income to the student if it is used for "qualified expenses." Qualified expenses include tuition and any fees, books, supplies, and equipment required of all students in the course. .A scholarship or fellowship used for expenses other than qualified expenses is considered to be taxable income by the IRS.

Taxable scholarships are generally referred to as stipends and are payments for which no services are rendered or required. Examples of stipends are payments that can be used for living and incidental expenses such as room and board, travel, non-required books and personal computers, etc.

If the University will receive more than an incidental benefit from the student, the payments are compensation for services performed which are subject to federal and state income tax withholding, and may be subject to FICA.

1098-T Forms

1098-T forms are released at the end of January each year amd report qualifying charges made during the prior calendar year (note that they do not report payments made to the University).

Qualifying charges include tuition, mandatory (comprehensive) fees, off-grounds fees, but not housing or dining charges.  Tuition for non-credit classes is not a qualifying charge.

For more about the 1098-T form, see the information available from Student Financial Services..

Education Tax Benefits

Education tax credits can help offset the costs of education and can be subtracted from federal income tax, not just deduct from taxable income.

For more information, see IRS Publication 970, Tax Benefits for Education, and the FAQs available from the IRS elating to the American Opportunity (Hope Credit extended) Tax Credit and the Lifetime Learning Tax Credit.

Non-Resident Aliens

Students from countries that have a tax treaty with the U.S. that includes a scholarship article may claim exemption or a reduction of the 14% withholding if the payment meets the requirements of the treaty.

The University reports stipend payments and the amount of federal tax withheld, if any, on Form 1042-S to the student and to the IRS. Students are responsible for reporting these payments and remitting any tax due with their personal income tax return at the end of the year on Forms 1040NR or 1040NR-EZ and the corresponding state forms.

For more information on non-resident alien tax reporting, please contact the Compliance and Immigraton Services unit in University Human Resources.

Questions or Comments?

Please contact us with any questions about tax compliance issues or contracting activities.

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