Do I need to report scholarships provided to my children (first grade and kindergarten) on my tax return?

by Eric J. Seidman, CPA | Jul 29, 2019

My two children were awarded academic scholarships to attend private school (kindergarten and 1st grade) for the upcoming 2019-2020 year. Each scholarship was $3,500. The scholarships only cover tuition and enrollment fees, and were paid directly to the school from the scholarship foundation. Do I need to report these scholarships on my 2019 and 2020 tax returns on a 1098-T, or are they tax-free?

There are two underlying questions here:

  1. Are the scholarships taxable to the recipient?
  2. Is anything reportable on a 1098-T?

Regarding the first question, scholarships are not taxable to the recipient as long as the student is attending a primary, secondary, or post-secondary educational institution on a full- or part-time basis. Kindergarten and 1st grade fall under the definition of a primary institution. The scholarships are also tax-free as long as the award covers tuition, fees, books, supplies, and equipment. If these criteria are met, there is no taxable item to report for the scholarships.

As for the second question, the institution may report the amount of tuition paid by the recipient, how much was billed, and how much was awarded in scholarships. In this case, the 1098-T would not be conducive to a tax deduction because the tuition was covered via a scholarship and not an out-of-pocket cost.

Please consult your tax professional for guidance specifically tailored to your situation.

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Answered by: Eric J. Seidman, CPA, is with Wouch Maloney & Co. LLP in Horsham, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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