Directive Statement
The university must appropriately classify, tax, and report awarded student scholarship, fellowship (non-training grant) and other financial aid.
Reason for Directive
The purpose of this directive is to ensure compliance with IRS regulations regarding taxation of student-related income, including scholarships, fellowships, and training grants.
Who must comply?
All university departments.
Overview
Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:
- You are a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
- The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution
A scholarship or fellowship is tax free only to the extent:
- It doesn’t exceed your qualified education expenses;
- It isn’t designated or earmarked for other purposes (such as room and board), and doesn’t require (by its terms) that it can’t be used for qualified education expenses; and
- It doesn’t represent payment for teaching, research, or other services required as a condition for receiving it (But for exceptions, see Payment for services in Publication 970, Tax Benefits for Education)
If all or part of a scholarship or fellowship grant is taxable, the recipient may need to make estimated tax payments to the IRS on this additional income. Estimated tax payments may be made through the Electronic Federal Tax Payment System (EFTPS) or by other IRS-approved methods.
Resources
IRS Tax Information for Students
IRS Pub 970 Tax Benefits for Education
Student Financial Affairs: Types of Aid
Electronic Federal Tax Payment System
Contacts
Tax Services: (352) 294-7266