Scholarships and Grants/ Tuition Reduction Flashcards
What is the annual limit on the amount that can be excluded from GI for scholarships and grants?
None
What education levels qualify for income exclusion from a scholarship or grant?
1) K-12
2) undergraduate
3) graduate
What is the phase-out amount for scholarship/grant gross income exclusion?
none
What are scholarships and fellowship grants?
- amounts paid/allowed to a student
- at a qualified education institution
- to aid in the “pursuit of study”
Pursuit of study includes study and research
What portion of scholarships and grants are tax free?
To the extent that the income :
- does not exceed qualified expenses
- is not designated for non-eligible expenses
- not for services required as a condition for receiving the scholarship/grant
When is a taxpayer considered a “candidate” for a degree program?
- k-12 OR pursing degree at college/university
2. attend a qualified educational institution
What are the requirements for being considered a “Qualified Educational Institution”? (4)
- offers a program that is acceptable for full credit towards a Bachelors or high degree
- programs that train students for gainful employment at a recognizable occupation
- program is accredited by federal/state law
- program maintains faculty, curriculum, students and a campus
What are qualified education expenses? (2)
- tuition and fees
2. course related expenses required of all students enrolled in the course
What expenses are not considered Qualified Education Expenses? (5)
- Room and Board
- Travel
- Research
- Clerical help
- Equipment and other expenses not required of all students in the course
Generally, payments for services (teaching/research) are not excluded from GI. What are the exceptions? (5)
- National Health Services Corp School program
- Armed forces Health Professional School/Financial Assistance Program
- Student work-learning service programs under Higher Education Act of 1965
- Athletic Scholarships
Are Athletic Scholarships taxable?
No
How is the taxable portion of a scholarship or grant reported?
As wages on line 1 of the 1040
If a taxpayers only income is a tax-free scholarship or grant does she have to file a tax return?
no
What portion of a scholarship/grant is taxable?
Portions paid for services performed primarily for the Universities benefit (ie: teaching, research)
How is a Fulbright Grant treated?
like a scholarship
How are Pell Grants and other needs based grants treated?
Like a scholarship
How is money received based on an appointment to a Military Academy treated?
As wages
What types of VA benefits are excluded from taxes? (3)
- education
- training
- subsistence
What is a Tuition Reduction? Is it taxable?
It is the amount paid by an employer to reduce the employee’s tuition costs at an eligible institution. Generally, it is taxable as compensation
When is a Tuition Reduction excluded from GI?
When a Non-Profit University provides the reduction for its employees
What are the requirements for a Qualified Tuition Reduction to be excluded from GI? (4)
- eligible education institution providing reduction
- eligible person receiving reduction
3 can’t exclude amounts for services provided - Officer/Owners can only excluded under a non-discriminatory benefits plan
*Graduate and Undergraduate rules vary
Tuition Reduction below Graduate Level:
What relationship does the taxpayer need to have with Institution providing the tuition reduction in order for the reduction to be excluded from GI?
- employee
- former employee because of retirement/disability
- widow/widower of employee
- dependent child or spouse of 1-3
- Applies to K-12 and Undergrad study
Tuition Reduction Exclusion Requirements for Graduate Level (3)
- the taxpayer received the reduction
- Eligible institution provided reduction
- TP provided teaching or research services for the university
Does a child of two deceased parents qualify for the exclusion of tuition reduction from GI?
Yes, if the child is under the age of 25 and both parents are deceased
Does a child of divorced parents qualify for the exclusion of tuition reduction from GI?
Yes - the child qualifies as a dependent for both parents
Can a TP elect to include some portion of an unrestricted scholarship as taxable income?
yes
Can a TP elect to include some portion of a restricted scholarship as taxable income?
no
What is a Restricted Scholarship?
A scholarship that restricts the use of funds in some way (usually only for tuition, fees and books).
What is an unrestricted scholarship?
A scholarship that allows the recipient to use the funds for anything. (ie: room and board, clothes, transportation)
