Why Receiving a 1098-T Scholarship that Exceeds Tuition Can Be a Good Thing
If you’re a college student or a parent of one, you’ve probably heard of the 1098-T form. This form is used to report educational expenses and scholarships on a tax return. When a student receives a scholarship, it’s usually used to pay for tuition fees, room and board, or other educational expenses. However, what happens if the scholarship amount exceeds the tuition fees? Is there anything that can be done? The answer is yes, and in this article, we’ll discuss why receiving a 1098-T scholarship that exceeds tuition can be a good thing.
What is a 1098-T Form?
Before diving into the benefits of receiving a scholarship that exceeds tuition fees, let’s briefly explain what a 1098-T form is. This form is issued by colleges and universities to report the amount paid for qualified tuition and related expenses. These expenses can include tuition fees, books, and other educational materials necessary for attendance at a qualified educational institution. Additionally, the form also includes information about any scholarships or grants received by the student during the calendar year.
Scholarship that Exceeds Tuition Fees
Now, let’s talk about why a scholarship that exceeds tuition fees can be a good thing. First off, it’s essential to note that if a scholarship covers more than just tuition fees, it’s considered taxable income. However, there’s an exception to this rule. According to the IRS, a scholarship or grant is tax-free if the money is used for qualified educational expenses. This includes expenses like books, supplies, and equipment required for coursework.
So, if a student receives a scholarship that exceeds their tuition fees, they can use the excess amount to purchase other necessary educational expenses without worrying about paying taxes on that amount. Additionally, if the scholarship amount is more than the total cost of attendance, the excess amount can be used for non-educational purposes such as housing, food, and transportation, as long as it’s included in the total amount reported on the student’s 1098-T form.
Benefits of Excess Scholarship Money
Receiving a scholarship that covers more than just tuition fees can have several advantages for the student and/or parent. Here are some of the benefits:
1. Reduce Student Loan Debt – If a student received an excess scholarship amount, this can be used to pay off any outstanding student loans or reduce future loan debt.
2. Cover Educational Expenses – The excess scholarship money can be used to purchase educational materials like books, supplies, and equipment that the student may not have been able to afford otherwise.
3. Focus on Academics – The student can focus on their studies without worrying about how to pay for additional educational expenses.
4. Lower Cost of Attendance – By using the excess scholarship money for non-educational expenses like housing, food, and transportation, the cost of attendance can be lowered, making education more affordable.
Conclusion
Receiving a scholarship that exceeds tuition fees can be a good thing for college students and their families. By using the excess amount to cover other educational expenses or non-educational expenses like housing or food, students can reduce their overall cost of attendance, focus on academics, and avoid taxable income. As always, it’s essential to consult with a tax professional for any tax-related questions.
