Are athletic scholarships taxed?

If your scholarship funds are used to pay for access to classes or for special supplies that your school requires you to buy to complete a course, you likely won’t have to count these funds as income or pay tax on them.

If the scholarship isn't used for tax-free expenses, it's taxable.

For more information please check: Do Scholarships Count as Taxable Income?

Simple answer: yes.

Scholarships that pay for qualified expenses (tuition, fees and course materials, including books and a required computer) are tax free.  Scholarships that pay for non qualified expenses (room and board) are taxable.

In simple terms, the amount by which box 5 of the 1098-T exceeds box 1 is taxable income.  The taxable amount can be reduced for the cost of books and a computer.

There is even a loop hole available,  where the parents can claim a tuition credit by having the student declare an additional $4000 of his/her scholarship to be taxable.