Are my scholarships taxable?

[Robin Lee]

Here is the situation - I am 23, in grad school. While preparing my
taxes, I found out that I was claimed as a dependent by my parents.
Thus, I lose my education credits and deductions, interest payment
deductions (terrible, since I DID pay interest in 2005 on student
loans), etc.

I received almost $15,000 in scholarships and grants, and took on about
$30,000 more in loans. This total is barely enough to cover tuition +
rent. I live a rather spartan life. If I have to report the $15,000
as taxable income, I can only take a $5,000 standard deduction due to
the fact that I am claimed as a dependent. This leaved me with nearly
$1,000 in taxes owed!

That would be an insane outcome, and would bankrupt me. Am I just
looking at this the wrong way? Even as a dependent, is there a way to
get credit for the fact that I am in school, not drawing a "real"
income, and have a mountain of debt to go along with it?

[roger...@yahoo.com]

Hopefully your major is not in the humanities, sounds like you will
have a lot of debt.

Google the terms & IRS. The money that goes to tuition is not taxable.
Here's one site:

http://www.irs.gov/individuals/students/article/0,,id=96674,00.html

to-wit:

Taxable Scholarships and Fellowships

If you received a scholarship or fellowship, all or part of it may be
taxable, even if you did not receive a Form W-2. Generally, the entire
amount is taxable if you are not a candidate for a degree.

If you are a candidate for a degree, you generally can exclude from
income that part of the grant used for:

Tuition and fees required for enrollment or attendance, or
Fees, books, supplies, and equipment required for your courses.
You cannot exclude from income any part of the grant used for other
purposes, such as room and board.

[Robin Lee]

Thanks, that's an interesting point. But I wonder if the IRS will
accept the discrepancy between my Form 1098-T and my reported taxable
income. The form indicates the scholarship and grant money as well as
the tuition that was billed. The tuition is over twice the amount of
the scholarships. Does the tuition simply swallow the scholarship in
its entierty, and shield it from taxation?

Thanks for the advice!

[Richard Macdonald]

"Robin Lee" <wil...@gmail.com> wrote in message
news:1139778935.2...@g47g2000cwa.googlegroups.com...

The Scholarships will reduce your claimable education
expenses as long as you are not a teaching asistant.

SECTION 117. QUALIFIED SCHOLARSHIPS
(a) GENERAL RULE
Gross income does not include any amount received as a qualified
scholarship by an individual who is a candidate for a degree at an
educational organization described in section 170(b)(1)(A)(ii).

(b) QUALIFIED SCHOLARSHIP
For purposes of this section--

(1) IN GENERAL
The term "qualified scholarship" means any amount received by an
individual as a scholarship or fellowship grant to the extent the
individual establishes that, in accordance with the conditions of the
grant, such amount was used for qualified tuition and related
expenses.

(2) QUALIFIED TUITION AND RELATED EXPENSES
For purposes of paragraph (1), the term "qualified tuition and
related expenses" means--
(A) tuition and fees required for the enrollment or attendance
of a student at an educational organization described in section
170(b)(1)(A)(ii), and
(B) fees, books, supplies, and equipment required for courses of
instruction at such an educational organization.

(c) LIMITATION
(1) IN GENERAL
Except as provided in paragraph (2), subsections (a) and (d) shall
not apply to that portion of any amount received which represents
payment for teaching, research, or other services by the student
required as a condition for receiving the qualified scholarship or
qualified tuition reduction.
(2) EXCEPTIONS
Paragraph (1) shall not apply to any amount received by an individual
under--
(A) the National Health Service Corps Scholarship Program under
section 338A(g)(1)(A) of the Public Health Service Act, or
(B) the Armed Forces Health Professions Scholarship and
Financial Assistance program under subchapter I of chapter 105
of title 10, United States Code.

(d) QUALIFIED TUITION REDUCTION
(1) IN GENERAL
Gross income shall not include any qualified tuition reduction.

(2) QUALIFIED TUITION REDUCTION
For purposes of this subsection, the term "qualified tuition
reduction" means the amount of any reduction in tuition provided to
an employee of an organization described in section 170(b)(1)(A)(ii)
for the education (below the graduate level) at such organization (or
another organization described in section 170(b)(1)(A)(ii)) of--
(A) such employee, or
(B) any person treated as an employee (or whose use is treated
as an employee use) under the rules of section 132(h).

(3) REDUCTION MUST NOT DISCRIMINATE IN FAVOR OF HIGHLY COMPENSATED,
ETC.
Paragraph (1) shall apply with respect to any qualified tuition
reduction provided with respect to any highly compensated employee
only if such reduction is available on substantially the same terms
to each member of a group of employees which is defined under a
reasonable classification set up by the employer which does not
discriminate in favor of highly compensated employees (within the
meaning of section 414(q)). For purposes of this paragraph, the term
"highly compensated employee" has the meaning given such term by
section 414(q).

[(4) REPEALED. PUB. L. 101-140, TITLE II, Section 203(a)(1), (2),
NOV. 8, 1989, 103 STAT. 830]

(5) SPECIAL RULES FOR TEACHING AND RESEARCH ASSISTANTS
In the case of the education of an individual who is a graduate
student at an educational organization described in section
170(b)(1)(A)(ii) and who is engaged in teaching or research
activities for such organization, paragraph (2) shall be applied as
if it did not contain the phrase "(below the graduate level)".