 and welcome to this session in which we will discuss the taxability of scholarship, fellowship, and any sort of college education help. Starting with a scholarship, what is a scholarship? Well, it's a form of financial aid given to the student to do what? To help them afford their education because especially in the US it costs a lot of money to attend school. Therefore what students try to do, they will try to either win a scholarship or get some sort of a scholarship to help them with their education. So this aid is to help pay for tuition, academic fees, books, supplies, to live, room and board, essential equipment, for courses, at any educational institution. That's what a scholarship is. Here we go. Is this amount taxable or not? Well, typically the amount is exempt from taxes. As long as, listen carefully, the money is used for tuition. It means you have to pay for your courses, academic fees, part of paying for your courses, you might have to pay something called academic fees, which is usually part of your tuition, required books, books that you need for your course, supplies you need for your course, and the necessary equipment for the courses. So notice, any expense related to tuition and anything related directly to courses, that's going to be exempt. However, any fund received specifically for room and board means to live, transportation, those are considered taxable. Now you might be saying why? Think about it. The reason for giving you a tax exempt scholarship is to help you with your education. Well, yes, helping you with education is a great thing, but subsidizing your room and board, somebody giving you a scholarship for room and board, and tax-free, well, you have to live whether you're going to college or not. So the government says, no, we're not going to do that. Also, transportation is not tax-free. Now, since you need to live anyway, those portion of the scholarship, they are taxable. So if you get $10,000, use $2,000 for room and board, well, they are not exempt. Now, what about athletic scholarships? Well, you're an athlete, you are offered a scholarship. Well, generally speaking, athletic scholarship are tax exempt if the recipient participation, so you are giving an athletic scholarship, is anticipated but not mandatory or not required. Hold on a second. So what does that mean? That means the college gave you an athletic scholarship. That's great. They don't require you. It's not mandatory to play sports. They gave you the scholarship because they want to kind of reward you for your skills. Now, most likely you're going to play, but if it's required or mandatory to play, then it becomes what? It becomes a form of compensation. And guess what? Compensation is taxable. So usually when they give it to you, usually college is the way they frame it is. You know, it's not required. It's not required that you play, but it's anticipated. You could choose not to play. Well, then you are not really working for them. So it's a very important concept when it comes to scholarship. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course, such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses, broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead. Start your free trial today. Let's take a look now at qualified tuition waiver. What is a qualified tuition waiver? It's basically when they waive your tuition waiver. It means they, you know, they say waived, gone, it's zero. We will waive your tuition. You don't have to pay anything. Or a reduction. Refer to a situation where a non-profit educational institution decides to lower or completely waive the cost of tuition for a student. When would that happen? When would that happen? That would happen. Let's assume I work for a state university and I do work for a state university. If I attend schools or my kids attend schools, what they would do, because I work there, they might waive or reduce the tuition. This is what qualifying tuition waiver. So the benefit is not included in the student's taxable income, making a tax-free form of assistance. Keep in mind though, this tax execution applies to undergraduate tuition waivers. Let's assume if I want to take a graduate course, well, if it's waived, it doesn't work. An undergraduate, it's different, implying that waiver or reduction for graduate programs may not be excluded from taxable income. So this is usually applies for undergraduate. Again, if my kids are attending the state school, I'm part of the state school system, they might waive or reduce their tuition. It's tax-free. Now how else you would receive a benefit as a student if you are attending a college, especially as a graduate student? Well, you could be a graduate assistant or a research assistant. Simply put, you get accepted to the program and what you do is you apply for an assistantship. It's called an assistantship within that program. And what you do as a result, you would receive a stipend. Simply put, a form of a salary. If the graduate student receiving a stipend, which is basically your pay, stipend is your pay for the role for what you do. For example, you're doing research or for example, what I did as I co-teach certain classes. Well, as a teaching or research assistant, which that's what I did, this income is subject to tax. So I applied for the scholarship. I got, not for the scholarship, I applied for the position as a graduate assistant or research assistant or graduate student research assistant. You're doing work. Well, if you're doing work again, if you are being paid for services you are rendering, you are being paid for compensation. If you are being paid for compensation, the amount is taxable, taxable. Now, sometime what you, what they would do that you could receive some money in addition, in addition, money received an additional reduction of tuition. So what they did, they paid you for your hours. In addition to that, and this is what I used to have, they waived half of my tuition. Well, that waiving for half of my tuition was non-taxable because they already paid me. This was basically a form of a scholarship from the university. Let's take a look at an example to see how this works. We have an Emily and a claimed soccer player receiving all state honors in her last two years of high school. State university recognizes her talent and offer her an athletic scholarship. Here's how, here's what here's how it was. The financial aid provided the following breakdown for her. For education fees including tuition was 14,000. Housing and meals costs were covered up to 5,500. That's what they covered for her. Also, 1,300 was allocated to books and supplies. She can buy books and supplies for 1,300 and 1,004 transportation expense. The question becomes how much would Emily include in her gross income? So how much of these amount are taxable? Well, educational fees including tuition, this should be tax-free. Housing meals, housing and meals, living and eating were covered up to 5,500. Well, that's going to be taxable. The 1,300 for books and supplies, it's basically part of the tuition and fees part of the cost of attendance school for educational purposes. That's going to be excluded. The 1,000 transportation will be included because it's not excluded. So what's going to be excluded from her gross income is 15,300. Housing meals and transportation, which is the 5,500 and the 1,000 are included. Let's assume her brother George does not have any athletic talents, but he received a 6,000 scholarship from the company where their father works. So the company gave them 6,000 dollars. The company provided this educational grant equivalent to half of the annual tuition, fees, books and supplies for all executives' children. So what happened is the company as form of compensation, not as benefit form of compensation, since you're an executive that's part of your compensation is we're going to pay half of your annual tuition, fees, books and supplies. Also George won an essay competition in the field of economics, his prospective area of study, earning him another scholarship of 4,000. So now we're going to discuss or we're going to determine what happened, how do we treat the 6,000 dollar and how do we treat the 4,000 dollar. Well as I mentioned, the 6,000 dollar is a form of compensation. What happened if it's form of compensation? Now you know the rules. It's taxable. It's a form of compensation to his father. So his father would include that money. How about the 4,000 dollar scholarship? Well the scholarship, although it's a prize but there's an exception for prizes, if the prize is a scholarship which is considered the scholarship it's tax free. So George don't have to include the 4,000 dollar but his father would have to include the 6,000 dollar in his income. What should you do now? Go to Farhad Lectures to learn more about gross execution because you need to know what's included, what's executed and in this session we focused on scholarship, fellowship, form of educational assistant, whether it's taxable or not. I have additional multiple choice through false lectures that's going to help you understand these concepts. Good luck, study hard and of course stay safe.