hey guys welcome back to money in life TV my name is Mike this is my sidekick
chipper I know many of the subscribers and viewers of this channel are in
college or are about to attend college so my goal today is to help you
understand when you have to pay tax and when you don't on your scholarship and
grant money and that's the goal for this video if you guys enjoy the video and
get something out of it don't forget to hit that like button now let's get
started alright guys this is a really cool topic
and a lot of people get scholarships and first of all I just want to talk about
scholarships and grants and say if you were able to get one congratulations
that is fantastic news for you my friend because that is less money that has to
come out of your pocket to get a higher education less money that has to go
towards student loans so less debt for you so congrats on getting those
scholarships and really it's one of if you can get scholarships ladies and
gentlemen it is by far the best way to pay for a school in my opinion it is one
of the best ways much more effective than working to pay for school if you
don't have to I work to wait my way through to school but if you can get
scholarships like I said that is your golden ticket!
so let's talk about right now let's talk about scholarships and grants now I
thought I should sit down for this one because I have some visuals on screen
and I want to show you and just so you know the vigil you're looking at right
now on screen is publication 970 now this is like the Bible for education tax
deductions so make sure to check it out all of the information from this video
is coming from here so make sure to read more about scholarships and scholarships
are all in this chapter 1 of this publication and I'm going to leave a
link down in the description section below this video
so you can go check this out for yourself just in case there's a question
I I missed or didn't cover I mean I'm gonna try to cover some of those guys
obviously there's a lot of information on scholarships so feel free to ask
questions or leave comments down below as you watch this video if you're
uncertain of what a scholarship or a fellowship grant is it's basically a
scholarship is generally in the mountain paid or allowed to or for the benefit of
a student whether an undergraduate or graduate add an educational institution
to aid in the pursuit of his or her studies so that's basically what
scholarship is so now let's take a look on screen of a table I made in Excel
that I feel breaks out the main differences between taxable scholarships
and non-taxable scholarships the truth is is that you might get a scholarship
that is partially tax-free and part of it is not tax-free so it just depends on
what expenses you use it for so let's look at that right now so let's start
with taxable scholarships let's I think that's a good place to start everything
that's taxable is on the left-hand side the grant our scholarship is taxable win
money is received but student is not pursuing degree so
you apply for the scholarship you write this awesome paper or somehow you come
into this money but you're not a student well then all of that is like income to
you and you have to report it on your tax return as wages the next area when
it's not tax-free is for when grants relate to payment for services so a lot
of times a person in order to get the scholarship or grant they have to do
something at the university they have to work as a teacher at that University are
they assist in research at you know thirsty it could be a variety of other
things too but if you are getting money from Grants and scholarships for that
specific purpose the portion that is for services the part you got for actually
doing work as a teacher or doing research for example that is going to be
taxable and what they're gonna do is if they're doing it correctly is they're
gonna send you a w-2 to report that amount of income on your tax return just
to specify the amount of money you got paid for services is will be on that W
tube okay the next area when it's taxable amount to use for anything other
than tuition fees and other qualified education expenses so all of us probably
know somebody who came into a lot of scholarship money our grant money and
what did they buy they went and bought a car with it they didn't spend it on
school or higher education qualified higher education expenses no they went
out and bought stuff money that they received on that scholarship since they
did not use it for educational purposes it's gonna be all taxable income to them
and of course any amount of scholarship or grant money that you receive that
exceeds qualified education expenses and this is to my understanding the year in
which you receive the money so if you have more scholarship money than
education expenses the amount that exceeds the your education expenses
let's say you're let's say you received $5,000 in scholarship money but you only
had three thousand dollars in education expenses that means two thousand of that
is gonna be taxable income to you
all right let's look at some examples of wind scholarship money will not be
taxable to you and that's of course a real obvious one right is amount so when
you use the money for tuition fees and other qualified education expenses if
you don't know what qualified education expenses are I have a whole video on
that I'll link it up in the description section down below so make sure to check
it out then also it's not taxable win if reduced tuition received by student for
teaching or research activities that were not considered payment for services
so it's okay if you work at the school and get tuition reductions as long as
it's not payment as long as it's not considered payment for services you
should be fine it's also not taxable if the amounts received by degree
candidates from National Health Service corporations or Armed Forces scholarship
programs for tuition fees books supplies and equipment
even if it's for services so if you're in the military or if you meet one of
these requirements where you're in the National Health Services Corp even if
that money you got for scholarships is from services and they say hey you still
non-taxable to you because you served our country and that's that's the best
situation you can have in that scenario
alright guys I know it's not on here but so let's say now often scholarships come
out and they're earmarked for certain things it could be earmarked for your
personal living expenses so based on the terms of the scholarship you have may
determine also if it's taxable or non-taxable so sometimes people will get
a scholarship that is strictly for room and board well any amount just so you
guys know any amount of scholarship money that you use for room and board is
not tax deductable and will be included in your income okay so any scholarship
money that you use for personal living expenses is gonna be taxable to you now
as I mentioned earlier in this video is that it's probably it's more than likely
that part of your money scholarship money is going to be taxable and part of
its not so in the publication there's a worksheet that's going to help you
determine how much of your scholarship income is taxable versus how much is not
taxable and you'll just work your way through the worksheet to determine that
and keep this as a work pay after you filled this out keep this as a work
paper for your tax documentation for that tax year
so you might be wondering well Mike if I have taxable scholarship income does
that mean I have to file a tax return for myself the answer is maybe so if you
if you don't work at all you know some people work but if you don't work at all
and just have some taxable scholarship income you might have to file a tax
return on that so I'm gonna link up a publication for you to check out to
determine the income finding requirements and I can tell you that if
somebody's claiming you as a dependent then it's going to be a right around
$6,000 anything above that is when you're gonna have to file so make sure
you look at that publication I linked up down below and check out the rules for
filing your income tax returns just to make sure you're covered you know if you
work let's say you work at a job and then in addition to your job income you
get this extra taxable scholarship income then more likely than not I'm
gonna guess you're gonna have to file because it doesn't take a lot of income
in order for you to have to be required to file a tax return now generally when
you see tax documents of scholarships it's gonna come to you possibly in a
couple different forms in one instance you might see the amount of scholarships
you received on a 1098-t that's one place you might see it another place you
might see it is if you get a w-2 because if part of your scholarship
money was from wages I mean from services then you're gonna have a w-2
that where you have to report that income on your tax return so you'll see
scholarship money there show up as well as wages the other place you might see
it unfortunately and this is not gonna be your fault or issue it's because
sometimes the organizations or companies issuing the tax documents for
scholarships don't quite know or fully understand what they're doing so if they
issue you a 1099 miscellaneous form with scholarship income on it that is
incorrect they're supposed to issue it on a w-2
however there's there are gonna be times when you get it on a 1099 so and just to
prove what I'm saying the IRS has in their publication on 1099 s this is what
they say about scholarships this is for companies who need to file scholarships
art this is for companies who need to send out information on scholarships so
the rule state says do not use form 1099 miscellaneous to report scholarship or
file if grants scholarship or fellowship
grants that are taxable to the recipient because they are paid for teaching
research or other services as a condition for receiving the grant are
considered wages and and must be reported on Form w2 other taxable
scholarship or fellowship payments to a degree or non degree candidate do not
have to be reported to the IRS on any form so those are the general reporting
rules so you might however like I said companies and organizations mess up and
they send you a 1099 with that scholarship income on it so if you get
that then just be aware of that and you should the correct way to report it is
on line seven of your 1040 and I'm going to show you an example right here let me
come down here so I found an example online as you would show this as wages
on this is the first page of the 1040 and you would this little code section
right here not a code section but this basically refers to that of these wages
nine thousand or so dollars of that is scholarship income in this example so
and it says right here this isn't this parts in the publication
but if you file form 1040 include the taxable amount in the total on line
seven if the taxable amount was not reported on Form w2 which is like a 1099
right because it's not on the w-2 also enter s CH in a taxable amount on
the dotted line next to line seven so that's how you are supposed to report
your scholarship income and you like it says right here make sure you enter the
SCH if the scholarship income was not correctly reported to you on a w-2 now
you can also another thing you can do if you do get a 1099 from whatever company
it is telling you that you have scholarship income you can contact them
and say hey this is incorrect scholarship income needs to be reported
on Form w2 please correct this and send me a tax form so don't ever be afraid to
do that you feel free to contact them and you can do it that way but if you
want to file your return before the deadline or if you don't want to extend
it then you can also report it here as well but I'd probably start with trying
to get them to correct it on their end so there's no matching issues between
the IRS database and in what you're reporting on your tax return all right
guys that's a brief overview of scholarship income
it's taxable when it's not how to report it on your tax return and the different
kind of forms and documents you might see that income reported on so remember
in general your scholarship money may be partially taxable it might be not
taxable at all or it could be taxable in full it all just depends on how you use
the money how you receive it why you receive that money you know is it for
services is it not for services so those kinds of things make sure to check out
the publication on that because there's a lot more detail in there especially if
I didn't cover something if there's anything you feel like a minister if you
still have questions like I said please drop your comments in the comment
section down below I'm more than happy to respond and I also want to point out
some links down here to some interesting articles about scholarship and taxation
that I feel are worth a read it's there's some pretty cool articles on
this that kind of break it down and I hope you guys found this video helpful
if you did make sure you smash that like button share this video with a friend
especially somebody who's going to school right now or who has parents who
have kids in school share it with those parents because those parents are hoping
to get as many tax deductions as possible and I'm sure they'll appreciate
you sharing this information with them also be sure to subscribe if you have
not already because every single week on this channel we produce new videos that
are gonna help you improve your financial position your career and your
life and we do that by teaching you personal finances investing and taxes on
a weekly basis if you guys have any questions like I said just drop them
down below I just want to say thank you to all of you for taking time out of
your day to watch this video and until then I love you guys I hope you have a
wonderful week I hope this stuff made sense the way I presented this and I
will see you in the next video bye all live life on cage