It's not something we tend to think about while our teens apply for and win scholarships. But it is something you should at least be aware of. When your teen has college scholarships, then in January of your teen's college years they will receive a 1098-T from their college. (It may not be mailed to your kid. It might only be found in the school's tax documents section of their college financial portal. So be sure to look.)
It's not a complicated thing. But here's the gist of it. (READ THE REST HERE.)
(NOTE: This information is for educational purposes only. Consult with your financial advisor or CPA for how you should handle your specific circumstances.)
Usually, scholarships that cover "qualified educational costs" are not taxable. But your opinion and that of the federal government of what qualifies may be different. Generally only course-related expenses such as tuition and fees, but it can include other items such as books, and equipment needed.
What doesn't qualify? Room and board and anything NOT listed on the college's list of required items for their degree program. (Grants can also be taxable depending on how the money is used.)
The good news is that most college students don't have a high enough income to pay taxes anyway. However, they should file a tax return to get back what their employer and they have paid. Also, those that do have to pay taxes are usually in a pretty low tax bracket so It shouldn't be a devastating amount.
You can get more info on tax credits and taxes on scholarships here: https://turbotax.intuit.com/tax-tips/college-and-education/taxes-for-grads-do-scholarships-count-as-taxable-income/L2hWn0lpe