Education & Opportunity

One reader of my newspaper column asks this week about whether college scholarships are, in fact, taxed by the government. The good news is that scholarship money spent on tuition, books, school fees, and other course-related expenses is usually not taxable.

As long as you don't spend the money on such things as room and board, clothing, or transportation (expenses that generally cause scholarship money to become taxable), the government shouldn't take a bite out of your winnings.

This is another big benefit of winning scholarships: For you or your parents to contribute $1,000 to your education, your family would need to earn significantly more than $1,000--because of all the state and federal (and maybe even local) income taxes that must first be paid on their earnings.

To put it another way, each dollar derived from scholarship winnings is worth quite a bit more than a dollar earned from your after-school job or your parents' employment--specifically because Uncle Sam doesn't take a cut out of your winnings.