In December 2018, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the Spring semester of 2019. However, she did not use the funds to pay the tuition until January 2019. Emily can exclude the $2,500 from her gross income in 2018.

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Scholarships are generally excluded from gross income if they are used for qualified education expenses. Since Emily is a cash basis taxpayer, she reports income when received, but scholarships intended for future education expenses can be excluded if they are used for qualified expenses in the following year.

In December 2018, Emily, a Cash Basis Taxpayer, Received a $2,500