Do I get any discount on my taxes next year?

Question

I got a full ride scholarship but I have to pay the money upfront and then I am reimbursed about a month later will I get any discount on taxes or do I get nothing because I have it paid by someone else. Do they even have to know about it?

Answer 1

I'm not sure what you mean by a discount - I suspect you mean "Can you take advantage of the Lifetime Learning Credit or Hope Credit and deduct some portion of the money that you paid in tuition, even if that money was paid by scholarship, rather than out-of-pocket?"

The answer is NO.

You cannot claim a credit for the amount of higher education expenses paid for with a tax-free scholarship. See the instructions for IRS Form 8863 for details. Here is the key language:

"You must reduce the total of your qualified education

expenses by any tax-free educational assistance and by any

refunds of your expenses."

By the way, you should speak to an accountant or some other financial professional about the proper tax treatment of any scholarships you received. Scholarship funds are only tax-free to the extent that the money pays for tuition, fees and books. If you used any portion of your scholarship to pay for room, board, or any materials that were not required for every student in your course, that portion of the scholarship funds are treated as taxable income.

As far as whether or not "they" (the IRS) know about it - your scholarship provider sends the IRS information about your scholarship every year - and they should also be sending you a W-2 that reflects your scholarship funds. You would be taking a significant risk if you don't claim the value of your scholarships on your return. See Publication 970 "Scholarships, Fellowships, Grants and Tuition Reduction" for more information.

I hope this helped - good luck!