Tuition and Fees

• Scholarships that may be considered tax-free are those that are used to pay for tuition costs and fees that are required for a student to enroll and attend an educational institution. These may also include costs for books, supplies, and equipment that are required for the courses taken. The student must be a candidate for an undergraduate or graduate degree at an accredited school that has a regular curriculum, faculty and student body.
  
  

Incidental Expenses

• Any portion of a church scholarship that is used or designated for incidental expenses such as room, board, entertainment, travel and equipment that is not required for courses would be considered taxable income and would need to be claimed on a student's taxes. For example, if a student received a $2,000 scholarship with $1,000 specifically designated for tuition and fees and $1,000 for other expenses, the $1,000 designated for other expenses may be considered taxable income, even if the student paid $1,500 for tuition.
  
  

Other Education Deductions and Credits

• There are three tax deductions or credits that students may be able to claim on their federal tax returns. These are the American Opportunity Credit, the Lifetime Learning Credit and the Tuition and Fees Deduction. Refer to IRS Publication 970 for more information about these credits and deductions.
  
  

Reporting Scholarship Money as Income

• For taxpayers using Form 1040EZ, the taxable portion of the church scholarship would be entered on Line 1, Wages, Salaries and Tips. For students that file with Form 1040 or Form 1040A, the taxable portion of the scholarship would need to be entered on Line 7 for both forms. The income entered would be any portion of scholarship money that was not reported on a Form W-2.