Tax on Athletic Scholarships....

........, whats up with that? I'm talking about a kid who plays ball and then owes a % of his grant. A full ride or 60% or whatever. Current college athletes have to fill out/accept a scholly each year, do they owe personal income taxes on these grants?

Can we get a TBR accountant to give us the ins and outs ......in laymens terms please.

Marlin

 

It is "income" in the respect that it reduces the amount you would have to pay from other after-tax money. Usually most kids dont have enough income to worry about it too much. You have to report them and it depends on how the scholarship money is used.... ie, tuition vs Room & Board & Travel.

http://www.irs.gov/publications/p970/ch01.html

 

my DD

My DD won a small scholarship it was only a $1000.00. She used it her freshman year. Got a 1099 in the mail and had to file it as income and had no job. oh well.........

 

Being taxed for a scholarship depends on what the scholarship is for. Assuming the player is a U.S. citizen or a resident alien, the player is not taxed on tuition and books (also includes limited tuition-related fees).

The player is, however, taxed on room and board and other fees not related to tuition. The school is required to withhold the money from the student--therefore, they should be shorting the student the amount of the scholarship that is taxed for room and board. The tax that is withheld from the school should be listed on the 1099.

All students who receive financial aid in the form of a scholarship receive a 1099, but they are only liable for tax if the money was not used for tuition and books. If they file a tax return, they should not owe tax on the amount listed on the 1099 for tuition and books.

If your daughter paid taxes for for tuition and books, I am guessing that it is possible that the school completed the 1099 incorrectly or withheld taxes incorrectly.

 

From the IRS Publication 970

The following is an excerpt from the IRS Publication 970

Scholarships and Fellowships
A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.
A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.
Table 1-1 provides an overview of the tax treatment of amounts received as a scholarship or fellowship (other than amounts received as payment for services). Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.

Tax-Free Scholarships and Fellowships
A scholarship or fellowship is tax free only if:

• You are a candidate for a degree at an eligible educational institution, and
• You use the scholarship or fellowship to pay qualified education expenses.

Candidate for a degree. You are a candidate for a degree if you:

1. Attend a primary or secondary school or are pursuing a degree at a college or university, or
2. Attend an accredited educational institution that is authorized to provide:
   1. A program that is acceptable for full credit toward a bachelor's or higher degree, or
   2. A program of training to prepare students for gainful employment in a recognized occupation.

Eligible educational institution. An eligible educational institution is one 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.
Qualified education expenses. For purposes of tax-free scholarships and fellowships, these are expenses for:

• Tuition and fees required to enroll at or attend an eligible educational institution, and
• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.
Expenses that do not qualify. Qualified education expenses do not include the cost of:

• Room and board,
• Travel,
• Research,
• Clerical help, or
• Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.