Do Athletes Pay Taxes on Scholarships?

by Mark Kennan, Demand Media
    Athletic scholarships are treated the same way as academic scholarships for tax purposes.

    Athletic scholarships are treated the same way as academic scholarships for tax purposes.

    You probably don't have much in common with college athletes when it comes to athletic ability. However, when it comes to income taxes, Uncle Sam levels the playing field: Scholarships for athletes are taxed the same as rides for academic types because they aren't considered payment for services.

    Degree Candidate

    For any of the scholarship to be tax-free, the athlete has to be a degree candidate. To the Internal Revenue Service, that means several criteria are met. The athlete must be pursuing a degree (though they don't have to finish). The school has to be legally authorized to offer classes that can be used toward a college degree or learning a trade. Yes, that even includes the one-and-done basketball star who isn't sticking around after his freshman year.

    Tax-Free Expenses

    Scholarships for tuition and fees required to attend the school qualify as tax-free treatment for athletes. Athletes can also exclude money for school-related books and supplies. However, these only count if it applies to every student in the class. For example, if everyone has to buy a copy of a certain textbook, and the athlete uses scholarship money to buy it, it's tax-free. However, if the athlete goes out and buys some extra study guides with that money, that portion of the scholarship is taxable.

    Taxable Expenses

    In short, if the scholarship isn't used for tax-free expenses, it's taxable. Common taxable expenses include room and board, personal travel and other living costs. Say an athlete gets a scholarship that covers tuition, room and board. Even if the student lives on campus and has a meal plan, and never gets a paper check, his room and board portion is still taxable income.

    Designated Scholarships

    If the scholarship has to be spent on a particular expense, the tax treatment for the athlete is determined by that designation. For example, say an athlete gets a scholarship to cover half of tuition and half of room and board. Only the tuition portion is tax-free. If the scholarship doesn't designate a specific expense, it's taxed or not taxed based on what the athlete does with the money. If the athlete uses all of a $15,000 scholarship for tuition, it's all tax-free. However, if she used 5,000 for room and board, all $5,000 is taxable.

    About the Author

    Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.

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