Rotary Scholarship

Today TaxMama hears from Leah in New York with great news. “I’ve won a Rotary Scholarship and will study for a Masters degree in Italy beginning this fall. Is any or all of the scholarship taxable? The scholarship covers tuition as well as a room & board stipend, airfare, and tuition for a language school. The tax information I’ve found at the IRS website is confusing. “

Dear Leah,

Congratulations on getting this full scholarship! And a trip to Italy. What a wonderful way to fund your education – and to get familiar with another culture.

I wish I could tell you that all the money is tax-free. Unfortunately, it’s very clear, even on the IRS website, that only part of the scholarship is tax-free.

If you read IRS Publication 970 – Tax Benefits for Education, there’s a section on tax-free scholarships.

Funds used for books, tuition and fees are not taxable.

But, in the very next section it spells out, in plain English:

Expenses that do not qualify. Qualified education expenses do not include the cost of:
Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.
This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.

There is one other thing you must investigate. Make sure that the Italian college is an “eligible educational institution”.

Some overseas colleges may qualify. Please make sure yours does.

I was doing some digging online to see what Rotary International says about their scholarships and taxability. And I am quite disappointed at the way they abdicate responsibility in this area.
The rules are clear. Why doesn’t Rotary International provide a customized report to each of their scholarship recipients? They have all the details – your university, the location, the costs of tuition and fees, etc. It’s not a big deal to give you information you can rely on.

Oh well. I guess you’ll have to set aside taxes for that part of the scholarship used for anything other than the tax-free expenses.

And remember, you’ll find answers to lots of questions about scholarships and other tax information, free. Where? At TaxMama.com

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