College scholarships that pay for room and board are taxable. Here are more details from IRS Publication 970 on the types of scholarships and fellowships that are tax exempt.
Tax-Free Scholarships and Fellowships
A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.A scholarship or fellowship is tax free only to the extent:
- It does not exceed your expenses;
- It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and
- It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship….
Worksheet 1–1 is used to calculate the amount of scholarship aid that can be excluded from gross income. If your only income is a tax-free scholarship, you do not need to file a tax return.
Work-study earnings are taxable, included in the IRS category of payment for services.
A summary from the IRS: Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead
Related: Tax season reminders about education tax benefits (Cost of College)
