Scholarships/Grants
According to the IRS, a scholarship/grant is generally an amount of money paid or allowed to, or for the benefit of a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate student.
Many individuals feel scholarships/grants are always tax-free. However, this is not true, according to the IRS and Congress.
Here is what the IRS says a tax-free scholarship/grant is:
A Scholarship/Grant Is Tax-Free Only If
- You are a candidate for a degree at an eligible education institution
- You use the scholarship to pay qualified educational expenses
Now this sounds fairly straightforward. Reading the definition, it is clear that most students will be attending college or other forms of post-secondary educational institution in order to get a degree and whatever the institution bills the student is a qualified expense.
However, most individuals do not know the difference between qualified and non-qualified educational expenses. Knowing the difference could qualify the family for an additional $9,600 of additional money directly from the IRS, (during the student's stay in college) in order to help pay for educational costs.
