Do you have to pay taxes on educational assistance?

A way to get help on covering college expenses is through educational assistance. There are many different types of it, each with its own rules and functioning. Learn whether you have to pay taxes on them according to which assistance you receive!

Scholarship or fellowship grants

You won’t have to pay taxes on these types of educational assistance, including need-based education grants, as long as you meet some requirements. Firstly, you need to be a degree candidate at an eligible educational institution. You also have to use this money to pay for tuition or fees that are necessary to enroll or attend this institution.

While qualifying expenses include books, equipment, and other purchases needed for a class, you can’t enjoy tax-free educational assistance if you use the money to cover non-educational expenses. These are those payments that have no educational purposes, such as travel or room. You can’t use the money on services that you need to fulfill the requirements to receive this financial assistance, either.

Payments to veterans

The Department of Veteran Affairs (VA) makes sure that all payments to veterans related to education, subsistence, or training, are tax-free. In the event that you qualify for other education tax benefits, you might need to lower the number of educational expenses that qualify for these other benefits by any payments made by the VA that are used to cover educational costs.

Tuition reductions

You can get a tax-free tuition reduction when it comes to undergraduate courses if you meet certain requirements. You need to be either a current or retired employee of the college, or one who left on disability. If you’re a widow/er of someone from the first or last category, you qualify as well. Any dependent child of the aforementioned categories will be able to get a tax-free tuition reduction.

On the other hand, graduate courses work differently. You can only get the benefit of a tax-free tuition reduction if you’re a student who currently teaches or performs research activities at the college or university.

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