How to Calculate Taxes on Scholarships and Grants

Scholarships and grants refer to financial assistance provided by the government to students who want to pursue further studies and have monetary problems. A student can take advantage of this financial aid by applying for it. The taxes calculated on it depend on the type of scholarship or grant received.

Instructions

Verify whether the scholarship or grant is tax-free or taxable

1. Find out if the financial benefit that you gain is tax-free, which it may be if it is utilized for paying tuition fees, or buying books or instruments used as a part of the instructional curriculum.

2. Know that for tax-free status it is necessary for an applicant to be a primary, secondary, post-secondary or vocational student of a full-fledged recognized educational institution. Further, the educational institution should have an appropriate number of pupils, regular staff and a syllabus pattern as per the standard educational norms for the scholarship to be tax-free.

3. Recognize that a part or the whole amount of money which is not received as a compensation for services in the institution, is normally tax-free.

4. Be aware that lodging and traveling expenses, compensation received for student coaching, cost of studies conducted, pay for clerical assistance sought, cost of equipment purchased for any purpose other than curriculum-based needs (or any kind of services offered to the institution) are taxable.

5. Understand that financial aid for duty-bound services under the head of the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program is considered tax-free.

6. Get a tax-free athletic scholarship, fulfilling the provisions mentioned in the above points.

Calculation of taxes on scholarships and grants

1. Understand that any scholarship or grant that does not satisfy the conditions of being tax-free is taxable and the amount needs to be added to your gross income on the basis of which your estimated taxes are calculated.

2. Verify the amendments and alterations made in the legal provisions pertaining to calculations of tax for the current year.

3. Calculate the estimated tax accordingly.

Tips & Warnings

• Visit the website of the Internal Revenue Service and get detailed information about tax liabilities and calculation of taxes.

• Pay the right amount of tax at the right time or face penalties according to the seriousness of the violation of the rules.