On August 1, 2014, Robert was granted a $5,400 scholarship for each of four academic years (nine months each year) to earn a degree from Birdhaven University. The scholarship grant includes $3,600 for tuition, fees, and books and $1,800 for room and board. Payment is one-ninth each month, starting September 10, 2014, and is made on the tenth of each month thereafter.
a. How much of the scholarship payments can Rob exclude from gross income in 2014? Why?
b. If Rob is not a degree candidate, is there any limitation to the amount of his exclusion? Explain.
Gross income refers to the total of the interest payments, profits, wages, rent, salaries, etc. before making any deduction of the taxes. Thus, it is the total amount of compensation earned by an employee from his employer before the tax deductions are made.
Answer and Explanation:
a) According to the scenario given above, $1,800 can be marked for a room and board and an amount of $3,600 per month should be excluded from the Total gross income which may be calculated as:
$3600 * 5 = 18,000 for the year 204.
b) If Rob is not a degree candidate, the full amount is taxable. The scholarship is tax-free for the degree students only in the eligible institutes.
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from Economics 102: MacroeconomicsChapter 4 / Lesson 2