The Tax Reform Act of 1986 specifies that “scholarship amounts granted … for expenses incurred … are taxable income, if the aggregate scholarship … amounts … exceed tuition and fees (not including room and board), books, supplies, and equipment required for courses of instruction at [an eligible] institution.”
Any general scholarship or grant that is received in a calendar year may be regarded as first applying toward excludable expenses (i.e., tuition, required fees, and required books, supplies, and equipment) even though family resources, loans, or student employment may in fact have initially paid those expenses. You should retain records (e.g., copies of relevant bills, receipts, checks) to document your excludable expenses. If you receive general scholarship or grant in excess of the cost of tuition, fees, and books, the excess amount is taxable. In addition, specific scholarships or grants (e.g., health insurance grants) that are directed toward expenses other than tuition, fees, and books are subject to taxation.
Other forms of financial aid — loans and student employment — are not covered by these provisions of the tax law. Earnings from student employment, of course, are taxable as wages, as is any summer stipend you may have received from the college. If you had any campus earnings during 2020, a W-2 form will be issued by the Williams College payroll department and will be available to download from your PeopleSoft account. If you had a taxable summer stipend, a 1099 will be issued by the Williams College Controller’s Office.
Student Financial Services has prepared a worksheet that will help you determine the amount of taxable scholarship or grant you may have received in 2020. Note that the terms referred to are for the spring and fall semesters of 2020, not the fall and spring semesters of 2020-21. If you no longer have copies of your award notice(s) that cover these periods, you can view (and print) them from your Williams Student Records > Self Service > Campus Finance > View Financial Aid.
Of note, the IRS Form 1098-T is designed to primarily report payments, scholarships, and grants applied to qualified charges that were posted to your student account during calendar year 2020. Form 1098-T does not contain complete information required to calculate the amount of your taxable scholarships and grants; therefore, we do not recommend using your 1098-T to make this calculation.
If you are a United States citizen or permanent resident completing an income tax return and you had taxable scholarships and grants, enter the amount of taxable aid to the left of the entry box for “wages, salaries, and tips” with the annotation “SCH” – for example, “SCH $5,000.” Include this amount with your wages, salaries, and tips.
For further information, you may find IRS Publication 970, Tax Benefits for Education, useful. Information, forms, and publications are also available from the IRS Web site, www.irs.gov, or by calling 800-829-3676. In addition, the IRS has a toll-free number (800-829-1040) to provide help in completing tax returns.