If I received a scholarship after I paid my tuition, does that count as an education refund?

Forum|Forum|6 years ago
June 4, 2019
3 replies
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I paid my tuition with money from a 529 and then received a scholarship afterwards. Because that money came straight to me instead of covering tuition, I don't know if it counts as a refund from educational expenses.

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JulieH1

Yes, in that case, it does count as a refund of educational expenses because you paid something and then it was refunded to you by the scholarship.

When you take out money from the 529 it is not taxable because it is paid for qualified expenses, so if you got reimbursed that money for the scholarship and you did not pay it back into the 529 then you can possibly be taxed on the refund of the expenses.

mds32

I have the same situation except I had paid the full tuition in cash (which obviously had already been taxed). I then received a half tuition scholarship, so half of the tuition I’d paid in cash was refunded to me. Is this taxable?

Hal_Al

Employee

Q. Half of the tuition I’d paid in cash was refunded to me. Is this taxable?

A. Simple answer: no. Since it was only reimbursement for qualified expenses (tuition), the scholarship is tax free.

This assumes that you did not claim a tuition credit based on the tuition you previously paid.

Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials, including a computer) is tax free. Scholarship amounts that exceed QEE is taxable income, on the student’s tax return.

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.

Carl11_2

Employee

Basically, income received from any source for qualified/allowed education expenses that is not used for those expenses, is reportable/taxable income to the recipient. But weather it's actually reportable depends on a number of factors, such as the standard deduction amount the recipient qualifies for.