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Scholarship Room & Board/Potentially Taxable Expenses

loritrenholmloritrenholm Posts: 23 ✭✭✭
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edited February 2022 in Grants & Scholarships

Hi everyone,

We have a new scholarship in which the donors want the scholarship to have the option of the student being allowed to use funds for room and board; specifically, assistance with off campus apartment rent or living expenses. All our scholarship payments are made to the student's tuition account at his/her school and are nontaxable. Do any of you have experience on potentially taxable scholarships? If so, how do you manage them? Thanks in advance for any guidance!

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    StephanieSYoungStephanieSYoung Posts: 4
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    edited March 2022

    Hello @loritrenholm!

    For students who are receiving scholarship money directly, we have them sign a "pay to student" form. In the form, we have a paragraph to inform them that if money is being used for non-educational purposes (i.e. tuition, books, materials, school fees, etc.), they must complete a w-9 and will receive a 1099-misc after the end of the calendar year. For many of our students, their income isn't enough to impact, but we still inform them of the possibility of taxes.

    I hope this helps...

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    loritrenholmloritrenholm Posts: 23 ✭✭✭
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    Thank you, Stephanie! Very helpful. Would you consider sharing the pay to student form? If so and if you prefer, my email is loritrenholm@dccfoundation.org.

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    loritrenholmloritrenholm Posts: 23 ✭✭✭
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    Thank you!

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    RandyMaconRandyMacon Posts: 3 ✭✭
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    Sorry to chime in late but I have a follow-up question for @StephanieSYoung. Stephanie, if you pay directly to a student and she/he/they use some of the money for a non-qualified expense, does that create any issues for your organization (e.g., having paid a non-qualified distribution)? Does that make sense? We're trying to learn about the pros and cons of paying directly to a student vs. paying their institution. Oh, and we are a private foundation with IRS approval to make scholarships (in case that is helpful info to know).


    Thanks,

    Randy

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    StephanieSYoungStephanieSYoung Posts: 4
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    edited June 2022

    Hi @RandyMacon,

    The burden of proof falls on the student. We have students sign a document acknowledging direct payment and intended use. There is a paragraph that states tax implications if money is not used for educational purposes. Most times, a student won't be taxed because their income and scholarship distribution is too low to have a significant impact. Best practice is to pay institution, but we are finding the barriers to completion are those expenses not included in COA. Families put all their money into the tuition/room/board and not much left for books, transportation, etc.

    I hope this helps!

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