On the laundry list of ways the Trump administration is thinking of making life more unpleasant and difficult, add counting scholarships as taxable income. Yup-- that college scholarship your child landed could come with a big tax bite.
This is tangential, but you mention that many state laws say that vouchers are not taxable income. New Hampshire's law does just that. NH doesn't have an income tax, so presumably that provision is telling voucher recipients they don't have to claim their vouchers as income when they file with the IRS. But I'm pretty sure NH doesn't get to decide what is taxable under the federal tax code, and with my (admittedly limited) look into it, I believe that while vouchers (aka "scholarships") used for tuition at accredited schools are excluded from income by the federal tax code, vouchers used for home schooling, learning pods, Joe's pop-up math center or the tutor next door are not. Does anyone have info about this? Agree? Disagree?
Florida’s vouchers are also not counted as income. Here's ChatGPT's explanation (un-fact-checked, so salt accordingly: "the provisions that exclude scholarships from federal income tax and those that apply to state-issued homeschool or private school vouchers are indeed different.
Scholarship Exclusion: Scholarships are generally excluded from taxable income under Section 117 of the Internal Revenue Code, provided they are used for qualified educational expenses, like tuition and fees required for enrollment or attendance at an educational institution.
State-Issued Vouchers: State-issued vouchers for homeschool or private schools typically fall under Section 529 of the Internal Revenue Code, which governs qualified tuition programs. These programs allow for tax-free assistance when the funds are used for qualified educational expenses, including tuition and related fees for elementary and secondary education."
Section 529 seems to apply only to scholarships related to higher education.(https://www.law.cornell.edu/uscode/text/26/529) It looks to me like under current law voucher recipients using vouchers for things other than tuition to accredited schools should be paying federal income taxes, regardless of what their state statutes say. But this is probably moot, because I'm sure if Rs become aware of this they'll just modify the Internal Revenue Code and consider all vouchers as non taxable income .... Unless they go the other route and make all scholarships taxable. Or maybe they'll make all scholarships taxable except for vouchers......
Interesting. Nice catch. Here’s another, non-fact-checked, explanation from ChatGPT,
1. General Welfare Exclusion: Under the Internal Revenue Code, payments made by governmental units under legislatively provided social benefit programs for the promotion of general welfare are excluded from taxable income. This “general welfare exclusion” applies if the payments are:
• Made from a governmental fund;
• For the promotion of general welfare (i.e., based on need);
• Not as compensation for services.
State-funded vouchers and ESAs typically meet these criteria, as they are designed to promote education and are not compensation for services.
Thanks for exposing this, Peter - there's a lot to talk about (and it has only been a week) - but important to take note of all the ways Elon, his puppet Prez, and the oligarchs are extracting cash from the rest of us.
This is tangential, but you mention that many state laws say that vouchers are not taxable income. New Hampshire's law does just that. NH doesn't have an income tax, so presumably that provision is telling voucher recipients they don't have to claim their vouchers as income when they file with the IRS. But I'm pretty sure NH doesn't get to decide what is taxable under the federal tax code, and with my (admittedly limited) look into it, I believe that while vouchers (aka "scholarships") used for tuition at accredited schools are excluded from income by the federal tax code, vouchers used for home schooling, learning pods, Joe's pop-up math center or the tutor next door are not. Does anyone have info about this? Agree? Disagree?
Florida’s vouchers are also not counted as income. Here's ChatGPT's explanation (un-fact-checked, so salt accordingly: "the provisions that exclude scholarships from federal income tax and those that apply to state-issued homeschool or private school vouchers are indeed different.
Scholarship Exclusion: Scholarships are generally excluded from taxable income under Section 117 of the Internal Revenue Code, provided they are used for qualified educational expenses, like tuition and fees required for enrollment or attendance at an educational institution.
State-Issued Vouchers: State-issued vouchers for homeschool or private schools typically fall under Section 529 of the Internal Revenue Code, which governs qualified tuition programs. These programs allow for tax-free assistance when the funds are used for qualified educational expenses, including tuition and related fees for elementary and secondary education."
But it's exactly those provisions in the federal tax code that exclude scholarships and vouchers as income that he's prepared to erase.
Right, but because they are different provisions they could conceivably do one and not the other.
Section 529 seems to apply only to scholarships related to higher education.(https://www.law.cornell.edu/uscode/text/26/529) It looks to me like under current law voucher recipients using vouchers for things other than tuition to accredited schools should be paying federal income taxes, regardless of what their state statutes say. But this is probably moot, because I'm sure if Rs become aware of this they'll just modify the Internal Revenue Code and consider all vouchers as non taxable income .... Unless they go the other route and make all scholarships taxable. Or maybe they'll make all scholarships taxable except for vouchers......
Interesting. Nice catch. Here’s another, non-fact-checked, explanation from ChatGPT,
1. General Welfare Exclusion: Under the Internal Revenue Code, payments made by governmental units under legislatively provided social benefit programs for the promotion of general welfare are excluded from taxable income. This “general welfare exclusion” applies if the payments are:
• Made from a governmental fund;
• For the promotion of general welfare (i.e., based on need);
• Not as compensation for services.
State-funded vouchers and ESAs typically meet these criteria, as they are designed to promote education and are not compensation for services.
Ghoulish -- Imagine, you're dirt poor and get a scholarship for college, but you can't afford the tax bill on it?!
Thanks for exposing this, Peter - there's a lot to talk about (and it has only been a week) - but important to take note of all the ways Elon, his puppet Prez, and the oligarchs are extracting cash from the rest of us.