Scholarships provide financial assistance to students who are in need and those who are eligible for the scholarship. Here, 1040 is the form on which scholarships are reported because it is the United States individual income tax return program. Every scholarship is not taxable but some scholarships are under the criteria of tax. This depends upon various factors such as the nature of the expense, etc. So, to help you understand where scholarships are reported on 1040 we will discuss Form 1040 and its relevant sections, different scenarios of reporting on Form 1040, and also which scholarship is taxable. Let’s begin with the Form 1040.
What is Form 1040?
Form 1040 is applicable in the United States and used for filing tax returns by United States residents. It is the standard IRS Form (Internal Revenue Service). This form deals with various other sections as well. These sections require the taxpayers to disclose their income which is taxable as this helps in the determination of additional taxes. It also guides with the tax refund if there is any for the taxpayer. This is possible only if taxpayers provide details of their one-year income.
The Form 1040 is filed by 15 April every year with the help of the IRS. Taxpayers need to provide personal details in Form 1040. The details include Name, Address, number of dependents, social security number, wages, salary, capital gains, and taxable interest.
While filing Form 1040, they may ask you to contribute to presidential campaign funds of $3 and full-year health coverage.
Where are Scholarships Reported on 1040?
Scholarships are reported on Form 1040 in the United States. 1040 is the federal income tax return form which has different sections. The tax returns are dependent on the situation of the taxpayer and the nature of the scholarship. As per the situation, scholarships are reported in different sections. Let’s discuss the scenarios and sections of reporting scholarships on 1040.
Different Scenarios of Reporting on Form 1040
Some of the major scenarios with scholarships are mentioned below which require reporting on Form 1040.
- Scholarships for the qualified expenses: Here, qualified expenses refer to the expenses which are covered under the scholarship criteria. The scholarship is awarded to cover the cost of qualified expenses such as tuition fees, books, attendance, and other costs that are relevant for successful enrollment at an eligible college. Therefore, in the case of qualified expenses, candidates do not need to report on tax returns as these costs are tax-free. Most of the time, scholarships are tax-free as the providers only award the amount which covers the cost of qualified expenses.
- Scholarships for non-qualified expenses: The non-qualified expenses are those expenses that are not on the list of qualified scholarship expenses. If the candidate uses the scholarship amount for non-qualified expenses like travel, room and board, and other personal expenses, then they may be taxable under Form 1040. It may report on different sections according to the specifications.
If the scholarship is received by the degree candidate but the rules of the scholarship say this scholarship only covers non-qualified expenses then the total amount of this scholarship is taxable under Form 1040. Therefore, if the scholarship is awarded for the qualified costs such as tuition fees, books, etc is considered tax exempt. Most of the qualified scholarships, are directly given to the institute in which you are attending your degree.
Different Sections of Form 1040
Various sections of Form 1040 require reporting according to specific conditions and the nature of the scholarship.
- Form 1040 Schedule 1: The taxpayer needs to report on Schedule 1 when they report their full income that is not from the sources like investment dividends, bank interest, or wages. Therefore, it means if you receive a taxable scholarship then it must be reported on Schedule 1 of Form 1040.
- Form 1040 Line 1: If the candidate received the scholarship that is under the category of taxable income which means the scholarship amount which is considered as part of your total income must be reported under Line 1 of Form 1040.
- Form 1040 Schedule 2: If you have to pay self-employment taxes, and household employment taxes then you have to report your income under Schedule 2.
- Form 1040 Schedule 3: If you want to claim education credits, foreign tax credits, or general business credits then you have to use Schedule 3 for reporting taxable income.
- Form 1040 Line 2b: You have to report your taxable portion of income on Line 2b if you receive Form 1099-MISC. This form includes those payments that are other than non-employee compensation and these are made by businesses to others.
- Form 1040 Line 7: If you receive scholarship income that is exempt from tax must be reported on Line 7.
Therefore, these are some sections of From 1040 which require reporting according to the conditions of your income.
Which part of the Scholarship is Taxable?
The scholarship amount that is not used for educational purposes and used for the purposes like travel, research, equipment, room and board, etc considered taxable. The amount that is used solely for educational expenses like tuition fees, books, etc is considered non-taxable.
Scholarships are reported on Form 1040 in the United States. Scholarships that are for qualified expenses are exempted from the reporting on Form 1040. Scholarships that are for unqualified expenses such as room and board, travel, etc are under the category of taxable scholarships on Form 1040 under different sections according to the purpose of the scholarship. Every year, the terms and conditions of Form 1040 will renew by the officials. To get accurate reporting of scholarships and to get proper assistance you should consult the officials of the IRS (Internal Revenue Service). They will guide you with the reporting of your specific tax returns.