Are Scholarships Considered Taxable Income?

I'm trying to figure out if the scholarships I received are going to affect my taxes. I'm a high school junior, and I'm already looking into different types of scholarships for college. The more I read, the more I see something about scholarships possibly being counted as income. That's kind of stressing me out because I don't really know how taxes work yet.

Can someone break down how scholarships might count as income when it comes to taxes? Are there certain types of scholarships that are considered taxable, and others that aren't? I'm curious about how this might apply to academic versus sports scholarships too. Any advice or resources for how to handle this when I eventually start filing taxes would be super helpful!

In simple terms, the taxability of scholarships in the United States depends on what the funds are used for. Money received from a scholarship may be considered taxable or tax-free depending on its purpose.

The tax-free portion of scholarships, according to the IRS, are those monies used to cover "qualified education expenses", also known as tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses that are required of all students in your course of study. These related expenses include fees, books, supplies, and equipment.

Income from scholarships which are utilized for other purposes, though, is usually considered taxable. Expenses that could make your scholarship taxable include room and board, travel, research, clerical help, or equipment and supplies that are not required of all students in your course of study.

There is no difference in tax treatment between academic and sports scholarships. If you are on a full-ride sports scholarship, for example, the portion of your scholarship that covers tuition and qualified expenses would be tax-free. However, the portion used for other incidentals, such as room and board, would be taxable.

The tax implications can be complex, so I strongly advise speaking with a tax professional once you start receiving scholarship money to ensure you are correctly following IRS guidelines.

Also, to manage these tax responsibilities, it would be beneficial to keep detailed records and receipts. Normally, the scholarship-granting organization will provide a breakdown of how funds should be allocated, but if they don't, have a detailed record of your expenditures linked to your education to justify your use of the scholarship fund.

It's great to see you taking proactive steps towards understanding this potentially confusing aspect of scholarships! Starting to plan early can only help.