Probably Silly Question but why arent scholarships taxable

[MiloTalon13]

What’s a regressive tax? On NIL?

Taxing financial aid.
I doubt tax law would ever single out athletic scholarships and treat them differently than other financial aid.
There is much more other financial aid than there is athletic scholarships - nearly half of Rutgers students receive financial aid of some sort.
People with less family income/ability to pay tuition - receive more financial aid
Taxing that aid would be regressive

 

[MiloTalon13]

A regressive tax is a tax that falls more heavily on low-income than high-income individuals. I think @MiloTalon13 is suggesting that taxing scholarships would be regressive because most scholarship is need-based aid and so it goes more to low- and middle-income kids than to high-income kids.

Exactly! and in fewer words than it took me to say the same thing 😃

 

[pmvon]

Taxing financial aid.
I doubt tax law would ever single out athletic scholarships and treat them differently than other financial aid.
There is much more other financial aid than there is athletic scholarships - nearly half of Rutgers students receive financial aid of some sort.
People with less family income/ability to pay tuition - receive more financial aid
Taxing that aid would be regressive

Totally agree. Financial aid whether merit or income based shouldn’t be taxed. One large reason is it’s already been taxed before it became financial aid, in the form of after tax earnings of donors.

Additionally, financial aid is a progressive redistribution of wealth underreported by just about everyone. Largely a voluntary redistribution of wealth from wealthy, mostly, donors to merit or needs based.

 

[MiloTalon13]

Totally agree. Financial aid whether merit or income based shouldn’t be taxed. One large reason is it’s already been taxed before it became financial aid, in the form of after tax earnings of donors.

Additionally, financial aid is a progressive redistribution of wealth underreported by just about everyone. Largely a voluntary redistribution of wealth from wealthy, mostly, donors to merit or needs based.

That line of reasoning leads to a discussion on the non-taxable status of endowment returns

 

[PSAL_Hoops]

Isn’t it because the tuition itself is tax deductible?

 

[retired711]

Isn’t it because the tuition itself is tax deductible?

No. It's only been in the past few years that there's been a deduction or credit for paying tuition, and the exemption of scholarships goes back at least to 1954 when the Internal Revenue Code was enacted.

 

[retired711]

Totally agree. Financial aid whether merit or income based shouldn’t be taxed. One large reason is it’s already been taxed before it became financial aid, in the form of after tax earnings of donors.

Additionally, financial aid is a progressive redistribution of wealth underreported by just about everyone. Largely a voluntary redistribution of wealth from wealthy, mostly, donors to merit or needs based.

I may not be understanding your second sentence right. Suppose I make a $1 million before taxes and contribute $100K the same year to Rutgers Athletics. The $100K is deductible as a charitable contribution. (Someone with that level of itemizable deductions will itemize rather than take the standard deduction.) So the contribution is not from after-tax dollars.

Beside, suppose a non-profit institution (a private university, for instance) finances scholarships after its endowment income (which is not taxed). The scholarships are still exempt from taxable income. The key isn't the source of the scholarship money, but the fact that it is given as a scholarship.