How Does Financial Aid Affect My Taxes?
Many students receive financial aid to help cover the costs of going to college. If you receive aid, it’s important to be educated on how it may affect your taxes. Here are some basics of what your tax situation may look like depending on the type of assistance you receive:
Grants and Scholarships
Grants, such as the Pell Grant, and scholarships are generally non-taxable as long as they fulfill the following requirements:
You’re pursuing a degree in an eligible educational program.
The funds are used for qualified education expenses, such as tuition and fees, and books, supplies, and equipment required for courses.
If the funds or a portion of the funds do not fulfill the above requirement, it is considered taxable income. Expenses that don’t qualify include room and board, research, and books, supplies, and equipment that aren’t required for courses.
Work-Study
As part of a financial aid package, a student may be eligible for the work-study program, which provides opportunities for part-time jobs. All income from a work-study position is taxable, however, the benefit of a work-study job is that it is not counted against you on the FAFSA application, unlike a regular part-time job.
Student Loans
Student loans are not considered income and are not taxable.
However, if a loan you receive includes interest, then you may be able to take a student loan interest deduction. You may take the deduction if your modified adjusted gross income is less than $85,00 (or $170,000 for married filing jointly) and the following don’t apply to you:
You filed married filing separately
Someone claims you as a dependent
Learn more about Tax Credits for Higher and Continuing Education.
Reporting Financial Aid to the IRS
Financial aid grants, scholarships, and loans used for qualified expenses are not required to be reported on your tax return.
Funds used on non-eligible expenses should be reported on the “Wages, salaries, tips” line of your tax return. Earnings from work-study positions will be provided on a W-2 from your employer and should be reported on your tax return.
If you have questions or need help filing your tax return, give us a call at (360) 922-0235. Our tax preparers would be happy to assist you!
Disclaimer: This material is prepared for informational purposes only, and is not tax advice. Please speak with a tax professional or view the resources below to see how this information may apply to you.
