Tax Treatment of a Scholarship from an 501(c)(6) nonprofit organization

Forum|Forum|3 years ago
June 28, 2022
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Hi,

I am a master student and I got a scholarship/achievement award in a check from a 501(c)(6) organization in 2022. My questions are below:

1. Should I be expecting a tax form from the organization before filing my 2022 tax return? If not, how to report it?

2. According to 26 USC Section 117, I believe the scholarship is tax free as long as I use it to pay for my tuition and books, and keep all my records of the payments. Is that correct?

3. I don't need to finish using up the scholarship fund in the year (2022) I received as long as I use it to pay for my tuition. Am I right?

Thank you in advance!

Hal_Al

Employee

Q. Should I be expecting a tax form from the organization before filing my 2022 tax return?

A. Not if it's a scholarship. But, for a definitive answer, you'll have to ask them. Rather than issuing a check to you, it's better, for tax purposes, if the organization sends the money to the school, for your account.

Q. If no tax form, how to report it?

A. You don't report it on any IRS form, if it was used for qualified expenses ( tuition, fees and books). In TurboTax (TT), you will be asked if you received any scholarships not shown on the 1098-T. Enter the amount and TT will match it to the expenses you enter. After adjusting for any tuition credit you may claim, it will report the any taxable amount on line 1 of form 1040 with an SCH notation.

Q. I believe the scholarship is tax free as long as I use it to pay for my tuition and books, and keep all my records of the payments. Is that correct?

A. Yes. Scholarships are tax-free if:
a. Funds are used for qualified education expenses,
b. Student is a candidate for a degree,
c. Student studies at an eligible educational institution, and
d. Award is non-compensatory
Otherwise, they are taxable – See IRS Publication 970

Q. I don't need to finish using up the scholarship fund in the year (2022) I received as long as I use it to pay for my tuition. Am I right?

A. No. If a check was issued to you in 2022, all the money, from that check, must be used for 2022 expenses.

asktaxquestionAuthor

Hi,

Thank you for the above response! I have a follow up question.

Q. I don't need to finish using up the scholarship fund in the year (2022) I received as long as I use it to pay for my tuition. Am I right?

A. No. If a check was issued to you in 2022, all the money, from that check, must be used for 2022 expenses.

If I use up the scholarship to pay for Fall 2022 and Spring 2023 tuition in 2022, is Spring 2023 considered 2022 expenses if it is a prepaid for an academic period that begins in the first three months of the next calendar year? Is there any IRS Publications I can refer to? Thank you!

Hal_Al

Employee

Q. If I use up the scholarship to pay for Fall 2022 and Spring 2023 tuition in 2022, is Spring 2023 considered 2022 expenses if it is a prepaid for an academic period that begins in the first three months of the next calendar year?

A. Yes.

Q. Is there any IRS Publications I can refer to?

A. IRS Publication 970.