Question

Anna is a graduate accounting student. She is the recipient of a $1,000 scholarship from the university. Anna also works as a part-time teaching assistant for which she is paid $3,000 per calendar year and receives a tuition waiver covering 100 percent of her tuition. If not for the waiver, Anna would have paid $8,000 for tuition. Further, she paid $400 for books and supplies related to her coursework and incurred room and board expenses of $6,200. How much gross income Anna must report related to her status as a student?

Answer 1

Answer:-

Under Sec. 117(b), Anna may exclude only $400 of her $1,000 scholarship as the only qualified expenses she incurs is $400 for books and supplies. The compensation of $3,000 is also taxable as it represents compensation for services. Sec. 117(c) specifically states no exclusion is available for amounts that represent payment for teaching. Although the tuition waiver is compensation for services, Sec. 117(d)(2) states that "qualified tuition reductions" may be excluded from gross income even if the reductions represent compensation for services rendered to the educational institution. Sec. 117(d)(5) states specifically that the exclusion is available to graduate students who receive tuition reductions for teaching. The Prop. Reg. Sec. 1.117-6(d)(5) includes examples describing compensation and tuition reductions awarded teaching and research assistants. The examples indicate that the compensation is taxable, but that the tuition waiver is nontaxable as long as the compensation is comparable to that paid to others who are not receiving the scholarship.