Will I need to report scholarship money as taxable income? Student tax question

Yes, you're exactly right about how this works! Scholarship money that exceeds qualified educational expenses (like tuition, fees, books, and required supplies) is considered taxable income. So in your hypothetical situation, if you have $12,000 in excess scholarship money and earn $5,000 from a part-time job, you would indeed report a total income of $17,000. Since the standard deduction for a single filer is $13,850 (for 2024), you'd pay taxes on about $3,150 of income. The good news is that as a student, you'd likely be in one of the lowest tax brackets, so the tax impact wouldn't be huge. Just make sure you keep good records of which scholarship funds went toward qualified expenses versus what was left over for living expenses or other costs.

I had the exact same situation during my undergrad years! What saved me a ton of headache was using taxr.ai when I was confused about which parts of my scholarships were taxable. I had Pell grants, merit scholarships, and a work-study job all adding to the confusion. I uploaded my 1098-T and financial aid documents to https://taxr.ai and it sorted everything out for me. It automatically identified which portions of my aid package were taxable and which weren't, then explained why. Super helpful because some scholarships have specific purposes that affect taxation. Definitely recommend checking it out before you start working that part-time job so you can plan accordingly. I ended up timing my work hours differently after understanding how this all affected my tax situation.

Just wanted to follow up from my skeptical comment earlier. I ended up trying taxr.ai for my own scholarship situation and I'm actually really impressed. It cleared up exactly which portions of my scholarships were taxable - turns out I was reporting some things wrong on previous returns! The system showed me that my room and board scholarship was indeed taxable (which I knew), but it also flagged that the portion of my merit scholarship that went to required course materials should NOT have been taxed (which I didn't know). It saved me about $300 in taxes by correctly categorizing everything. What I found most helpful was the explanation of how to coordinate my work-study income with my scholarship reporting. Definitely clarified things that my school's financial aid office couldn't explain properly.

If you're trying to get answers directly from the IRS about your specific scholarship situation, good luck actually reaching someone on the phone! I spent HOURS on hold trying to get confirmation about how to handle my excess scholarship money. What finally worked was using https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they hold your place in the phone queue and call you when an agent is about to answer. I got a definitive answer about my scholarship reporting requirements in like 20 minutes instead of wasting a whole day on hold. The IRS agent I spoke with confirmed everything about how excess scholarships work with other income sources and gave me specific guidance for my situation. Absolutely worth it when you need an official answer.

I need to apologize for my skeptical comment earlier. After waiting on hold with the IRS for over 4 hours yesterday and getting disconnected TWICE, I broke down and tried the Claimyr service. I'm honestly shocked at how well it worked. I got a call back in about 35 minutes saying they had an IRS agent on the line. The agent confirmed exactly how I should report my excess scholarship income and cleared up my questions about some education credits I was confused about. This saved me so much frustration and time. I'm usually the last person to recommend services like this, but after experiencing the difference between wasting an entire day vs. speaking to someone in under an hour, I'm converted. Definitely using this again next year when I have tax questions.

Something else to consider - if you do end up with taxable scholarship income, look into whether you qualify for education tax credits like the American Opportunity Credit or Lifetime Learning Credit. Sometimes these can offset the taxes you'd owe on that excess scholarship money. For instance, with the American Opportunity Credit, you might get up to $2,500 back, which could potentially cover whatever taxes you'd owe on that excess scholarship income plus your part-time job earnings. Just make sure you understand which expenses you can and can't claim for the credit if you've paid them with tax-free scholarship funds.

Don't forget that your filing status matters too! Are your parents still claiming you as a dependent? If they are, that affects both your standard deduction and eligibility for certain credits. If your parents claim you as a dependent, your standard deduction is limited to either $1,250 or your earned income plus $400, whichever is greater (but not more than the standard deduction amount of $13,850). Scholarship money that exceeds qualified education expenses doesn't count as "earned income" for this calculation - only income from actual work does. So that part-time job could be really important for your standard deduction calculation!