Scholarships and Grants/ Tuition Reduction

Question 1

What is the annual limit on the amount that can be excluded from GI for scholarships and grants?

Answer 1

None

Question 2

What education levels qualify for income exclusion from a scholarship or grant?

Answer 2

1) K-12
2) undergraduate
3) graduate

Question 3

What is the phase-out amount for scholarship/grant gross income exclusion?

Answer 3

none

Question 4

What are scholarships and fellowship grants?

Answer 4

1. amounts paid/allowed to a student
2. at a qualified education institution
3. to aid in the “pursuit of study”

Pursuit of study includes study and research

Question 5

What portion of scholarships and grants are tax free?

Answer 5

To the extent that the income :

1. does not exceed qualified expenses
2. is not designated for non-eligible expenses
3. not for services required as a condition for receiving the scholarship/grant

Question 6

When is a taxpayer considered a “candidate” for a degree program?

Answer 6

1. k-12 OR pursing degree at college/university

2. attend a qualified educational institution

Question 7

What are the requirements for being considered a “Qualified Educational Institution”? (4)

Answer 7

1. offers a program that is acceptable for full credit towards a Bachelors or high degree
2. programs that train students for gainful employment at a recognizable occupation
3. program is accredited by federal/state law
4. program maintains faculty, curriculum, students and a campus

Question 8

What are qualified education expenses? (2)

Answer 8

1. tuition and fees

2. course related expenses required of all students enrolled in the course

Question 9

What expenses are not considered Qualified Education Expenses? (5)

Answer 9

1. Room and Board
2. Travel
3. Research
4. Clerical help
5. Equipment and other expenses not required of all students in the course

Question 10

Generally, payments for services (teaching/research) are not excluded from GI. What are the exceptions? (5)

Answer 10

1. National Health Services Corp School program
2. Armed forces Health Professional School/Financial Assistance Program
3. Student work-learning service programs under Higher Education Act of 1965
4. Athletic Scholarships

Question 11

Are Athletic Scholarships taxable?

Answer 11

No

Question 12

How is the taxable portion of a scholarship or grant reported?

Answer 12

As wages on line 1 of the 1040

Question 13

If a taxpayers only income is a tax-free scholarship or grant does she have to file a tax return?

Answer 13

no

Question 14

What portion of a scholarship/grant is taxable?

Answer 14

Portions paid for services performed primarily for the Universities benefit (ie: teaching, research)

Question 15

How is a Fulbright Grant treated?

Answer 15

like a scholarship

Question 16

How are Pell Grants and other needs based grants treated?

Answer 16

Like a scholarship

Question 17

How is money received based on an appointment to a Military Academy treated?

Answer 17

As wages

Question 18

What types of VA benefits are excluded from taxes? (3)

Answer 18

1. education
2. training
3. subsistence

Question 19

What is a Tuition Reduction? Is it taxable?

Answer 19

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

Question 20

When is a Tuition Reduction excluded from GI?

Answer 20

When a Non-Profit University provides the reduction for its employees

Question 21

What are the requirements for a Qualified Tuition Reduction to be excluded from GI? (4)

Answer 21

1. eligible education institution providing reduction
2. eligible person receiving reduction
   3 can’t exclude amounts for services provided
3. Officer/Owners can only excluded under a non-discriminatory benefits plan

*Graduate and Undergraduate rules vary

Question 22

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?

Answer 22

1. employee
2. former employee because of retirement/disability
3. widow/widower of employee
4. dependent child or spouse of 1-3

• Applies to K-12 and Undergrad study

Question 23

Tuition Reduction Exclusion Requirements for Graduate Level (3)

Answer 23

1. the taxpayer received the reduction
2. Eligible institution provided reduction
3. TP provided teaching or research services for the university

Question 24

Does a child of two deceased parents qualify for the exclusion of tuition reduction from GI?

Answer 24

Yes, if the child is under the age of 25 and both parents are deceased

Question 25

Does a child of divorced parents qualify for the exclusion of tuition reduction from GI?

Answer 25

Yes - the child qualifies as a dependent for both parents

Question 26

Can a TP elect to include some portion of an unrestricted scholarship as taxable income?

Answer 26

yes

Question 27

Can a TP elect to include some portion of a restricted scholarship as taxable income?

Answer 27

no

Question 28

What is a Restricted Scholarship?

Answer 28

A scholarship that restricts the use of funds in some way (usually only for tuition, fees and books).

Question 29

What is an unrestricted scholarship?

Answer 29

A scholarship that allows the recipient to use the funds for anything. (ie: room and board, clothes, transportation)