| When are Scholarships or and Fellowships Taxable?
A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. he student may be either an undergraduate or a graduate.
A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.
A scholarship or fellowship is tax free only if you meet the following conditions:
1. You are a candidate for a degree at an eligible educational institution.
2. You use the scholarship or fellowship to pay qualified education expenses.
What are Qualified Education Expenses?
For purposes of tax-free scholarships and fellowships, these are expenses that are considered qualified education expenses:
1. Tuition and fees required to enroll at or attend an eligible educational institution.
2. Course-related expenses, such as fees, books, supplies, and 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.
However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.
Expenses that Don't Qualify are as follows:
1. Room and board.
2. Travel.
3. Research.
4. Clerical help.
5. Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.
This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable
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