Question

. How are scholarships received treated for tax purposes? For example, look at difference between tuition and fees vs. room and board. What are some common examples of income, and what are some common examples of items excluded from income? For example, included items would be income such as alimony received from pre-2019 divorces, gambling winnings, wages, unemployment compensation, etc. and excluded items would be income such as life insurance proceeds, child support payments, medical reimbursements to cover medical expenses, municipal bond interest income, scholarships for tuition and books, inheritances, and gifts, group term life insurance premiums paid by an employer for a policy under $50,000, employee discounts, certain public transportation costs paid for by an employer, veterans' benefits, etc. How are gifts received treated for income tax purposes? How are alimony and child support payments treated for tax purposes? .

Answer 1

1)According to the IRS, certain conditions must be met for a scholarship to be tax-free:
• The student must be a degree candidate at an eligible educational institution, which generally means an institution with a regular faculty and curriculum and a regularly enrolled body of students.
•The scholarship or fellowship money is used for qualified expenses. This includes tuition and fees, books, and course- or degree-related costs (like supplies required for specific classes) but does not include other college-related costs such as room, board and travel.
•The money does not represent wages for teaching or other work.
If the above said conditions are satisfied the scholarship received will be treated as tax free.

2) Examples of income : Salaries , bonus , dividends , employee awards , barter income , interest income , jury duty pay , gratuity

Examples of items excluded from income : Combat pay , munucipal bond interest , social security benefits , life insurance death benefits proceeds , scholarships , disability insurance payments , child support payments , travel allowances.

3) The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

• Gifts that are not more than the annual exclusion for the calendar year. (The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000. For 2018, 2019, and 2020, the annual exclusion is $15,000.The money does not represent wages for teaching or other work.)

• Tuition or medical expenses you pay for someone (the educational and medical exclusions).

• Gifts to your spouse.

• Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

4) Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you're required to file a tax return, don't include child support payments received.

Under divorce or separation instruments executed on or before December 31, 2018, alimony payments are deductible by the payer and taxable to the recipient. When you calculate your gross income to see if you’re required to file a tax return, you should include alimony payments received under such an instrument.

However, under divorce or separation instruments executed after December 31, 2018, and under certain instruments executed on or before December 31, 2018 but later modified, if the modification expressly states the repeal of the deduction for alimony applies to the modification, alimony payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you’re required to file a tax return, don’t include alimony payments received under such an instrument.