College scholarships and the kiddie tax

July 8, 2019

Most scholarships and fellowship grants are nontaxable as long as they’re used for qualified expenses such as required tuition, fees, books, supplies and equipment. But the Tax Cuts and Jobs Act (TCJA) changed some of the rules around what is and is not taxable when it comes to scholarships.

Scholarship or fellowship grant money used to pay for room and board, or something else that is not considered qualified tuition or a related expense, is taxable. A scholarship may also be taxable when the money is earmarked for a nonqualifying purpose such as room and board or travel.

Scholarship funds used for these purposes are generally considered to be unearned income and are subject to “the kiddie tax,” which is calculated at modified trust and estate tax rates. Learn how to avoid the liability.

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