Taxing scholarships?

I’ve had a few questions from clients recently about the Trump administration’s plans to make college scholarships taxable income. Here’s what I know at this time. 

Republicans in Washington, D.C., are planning to extend tax cuts from the 2017 Tax Cuts and Jobs Act. To pay for these tax cuts and new spending, lawmakers are considering slashing dozens of federal programs and benefits. One proposal Republicans are considering is making all college scholarships and fellowships taxable income. This change would immediately make college more expensive for millions of students who receive grants and scholarships to help pay their tuition and fees. It is not clear at this stage whether the plan would include athletic and academic scholarships, merit-based scholarships, need-based financial aid, or all of the above. 

As it currently stands, if a student receives grants and scholarships that are used to pay tuition and fees, as well as books and supplies, they are not considered taxable income. Scholarships that cover expenses not directly related to educational activities—housing, food, and transportation principally—are considered taxable income. 

Because of the uncertain future for higher education in the United States, some clients and their families are inquiring about post-secondary opportunities outside the United States. I am becoming more familiar with these options, and I will have a blog post coming soon with more information on that subject. Stay tuned!