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FAQ Keyword 2005 Tax Year

Keyword: Scholarships

This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

I received an academic scholarship that is designated to be used for tuition and books. Is this taxable?

Qualified scholarships and fellowships are treated as tax-free amounts if all of the following conditions are met:

  1. You are a candidate for a degree at an educational institution,
  2. Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction, and
  3. The amounts received are not a payment for your services.

For additional information on Scholarship and Fellowship Grants, refer to Tax Topic 421, and Publication 970, Tax Benefits for Education .


If I pay college tuition and fees with a scholarship, can I claim an education credit on Form 8863 for those payments?

No. You cannot claim a credit for the amount of higher education expenses paid for by tax-free scholarships.


If the amount of qualified tuition and fees I pay is greater than the amount of my scholarship, should I fill out Form 8863? If I cannot use Form 8863 because I received a scholarship, what can I do?

You must reduce the qualified expenses by the amount of any tax-free educational assistance. Do not reduce the qualified expenses by amounts paid with the student's earnings, loans, gifts, inheritances, and personal savings. Also, do not reduce the qualified expenses by any scholarship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualified tuition and related expenses.


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