Tax Tip #246

As a general rule, scholarships used to pay for qualified education expenses are not subject to tax. However, if the scholarship amount exceeds the amount reported on the Form 1098-T tuition statement, the excess could be taxable. The scholarship can remain tax-free if the excess is used for other qualifying expenses such as books and supplies. If the excess is used for non-qualifying expenses such as room and board, it then becomes taxable. Grants are treated similarly.