Question

Audrey is a degree candidate at her local state college. She received a scholarship for $5,000. She applied the amount to her tuition, which totaled $10,000. How much, if any, of the scholarship is taxable income?

Answer 1

Audrey's scholarship is not taxable since the $5,000 she received was used to pay for tuition, which is a qualified educational expense.

Step-by-step explanation:

The question relates to whether Audrey's scholarship is taxable income under current tax laws. Scholarships used directly for tuition and related educational expenses, such as books and supplies required for coursework, are generally not taxable.

However, if scholarship funds are used for other expenses such as room and board, or if they are provided in exchange for services like teaching or research, the portion of the scholarship used for those purposes may be taxable. In Audrey's case, the $5,000 she received as a scholarship was applied to her tuition which totaled $10,000.

Therefore, none of the scholarships would be considered taxable income since it was used for a qualified educational expense.