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Ask Kim

Taxes on Scholarships

Scholarships are generally taxed at the student’s income tax rate and not the parents’, so taxes will usually be much lower.

My daughter received a full scholarship to college, including tuition and room and board. Will any of the money be taxable? -- K.M., Kokomo, Ind.

See Also: The 529 Plan Scholarship Exception

Unfortunately, yes. Scholarships are tax-free up to the cost of tuition and course-related expenses, such as books and supplies. Money for anything else not required for enrollment, including housing and travel, is taxed as income. And any scholarship money received as payment for services, such as teaching or assisting in a lab, may be taxed.

Luckily, scholarships are generally taxed at the student’s income tax rate and not the parents’, so taxes will usually be much lower.

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