Financial aid for a 1st grader.

[AccTaxMan]

A 1st grader goes to a private school. The school has financial aid program for the lower income family. Last year, they granted $3,000 to the 1st grader and the full amount was applied to the tuition payment. Is the $3,000 taxable income to the parents of the 1st grader?

We all know financial aid to a college undergraduate school is not taxable if it is used for tuition. Is the rule the same for a 1st grader?

[AccTaxMan]

Any opinion...?

[David1980]

A scholarship or fellowship is tax free if you are a candidate for a degree at an eligible educational institution and you use the scholarship or fellowship to pay qualified education expenses.

You are a candidate for a degree if you attend a primary or secondary school or are persuing a degree at a college or university.

1st grade counts as a primary school I think?

[Koss]

Agree

First grade is part of primary school, also known as grade school or elementary school.

At first I did not think that students at a primary or secondary school would be considered degree candidates, but David1980's comments are taken directly IRS Publication 970.

I don't think the money is taxable. If it is considered a scholarship, then it is tax-free, according to Pub. 970.

I'm not entirely convinced it's a scholarship. It may well be. But if it isn't a scholarship, then what is it?

It may be a gift, plain and simple. Gifts are nontaxable. End of story.

All income is taxable unless excluded by law. This thing is either a tax-free scholarship, or it is something that isn't even income.

BMK

[Gary2]

I wouldn't think of it as being a gift, because there's a business relationship. But what stops it from being a discount on services?

Is there any law or rule that stops all non-profit service providers from setting prices based on ability to pay? I expect certain types of services, such as medical providers, can't, but a school? What about a non-profit day care center, which presumably wouldn't come under the scholarship rules?