What is a scholarship and a grant?
A scholarship is any amount paid to a student attending an educational institution for the purpose of study. A grant is similar to a scholarship but can be taxable if it does not meet specific expenditure criteria, whereas a fellowship grant is an amount paid to an individual for the use of study or research.
What counts as a scholarship or grant?
The key difference between a scholarship and a grant is that a grant is any amount of money that is awarded on an objective and nondiscriminatory basis, while a scholarship is an amount paid specifically for a student to attend an educational institution for the purpose of study.
Are scholarships and grants taxable?
A scholarship and a fellowship grant can be tax-free if the following conditions are met: the recipient is a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities, and the amount of the scholarship is used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.
Scholarships and fellowship grants are taxable and must be included in gross income if the amount is used for incidental expenses such as room and board, travel, and optional equipment. It can also be taxable if it is an amount received as payments for teaching, research, or other services required as a condition for receiving the scholarship.
A grant can only be non-taxable if it is awarded on an objective and nondiscriminatory basis and the satisfaction as described by the Internal Revenue Service is met. As stated by the IRS a grant can only be nontaxable if it is used for study at an educational institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where the educational activities are carried on, the grant qualifies as a prize or award that is excludible from gross income under Internal Revenue Code section 74(b), or the grant is used to achieve specific objectives such as to produce a report or similar product, or to improve or enhance a literary, artistic, musical, scientific, or teaching skill or talent of the grantee.
A grant is taxable if the individual uses it for travel, study, or similar purposes unless the requirements as stated above are applicable.
At what tax rate are scholarships and grants taxed?
There is generally no tax rate for scholarships and grants because most of the time they are tax-free. Since most scholarships and grants meet the criteria that they are used for, there is no tax rate.
Do I receive a tax form for scholarships and grants?
When a student receives a scholarship or fellowship grant, they will get a Form 1098-T, Tuition Statement. On the Form 1098-T there is a line item called scholarships and grants (box 5) that will have the sum of their eligible awards that needs to be reported on the tax return.
What is cancellation of debt?
Cancellation of debt is the amount that you don’t have to pay when your debt is forgiven or discharged for less than the full amount you owe. This can occur if the creditor can’t collect or gives up on collecting the amount you were obligated to pay. This can also occur due to a foreclosure, repossession, voluntary transfer, abandonment, or mortgage modification on a property.
Is cancellation of debt taxed?
If you have cancellation of debt income due to the fact that your debt was cancelled, forgiven, or discharged for less than the amount you must pay, the amount of cancelled debt is taxable and must be reported on your tax return in the year the cancellation occurs. The cancelled debt is not taxable if the law specifically allows you to exclude it from gross income based on the following criteria: debt cancelled in a Title 11 bankruptcy case, debt cancelled to the extent insolvent, cancellation of qualified farm indebtedness, cancellation of qualified real property business indebtedness, or cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2026.
Do I receive a tax form and where is it reported on my tax return?
If there is a cancellation of debt you may receive a Form 1099-C, Cancellation of Debt, that shows the amount of cancellation of debt and the date of cancellation. The cancellation of debt is to be reported on the “Other Income” line of your Form 1040, U.S. Individual Income Tax Return.
Is cancelled debt subject to Self-Employment Tax?
Cancelled debt is subject to Self-Employment tax and you are subject to the 15.3% self-employment tax rate.
Charge-off vs. Cancellation of debt
A charge-off is an entry on your credit report that indicates a creditor, after trying and failing to get you to make good on debt, has given up on receiving payment and closed your account. A charge off greatly affects your credit report when trying to attain a new loan, whereas cancellation of debt does not affect your credit report because the creditor has forgiven or discharged some or all of the debt owed.