For many people, tax time is one of the most complicated times of the year. April 15 is a busy time for accountants and tax preparers, but it’s also a stressful time for most people. If you’re a student, you might not know what to do – especially if you have scholarships and grants. Do scholarships and grants affect your taxes?
There’s not an easy answer to that question. If you earned scholarships and grants, you might owe taxes. But how can you be sure?
Read below to see what you need to know about how financial aid can affect you during tax time and how you can be prepared.
What Students Should Know About Scholarships, Grants, And Taxes
There are three basic kinds of college-related aid: merit-based scholarships, grants determined by need and loans.
In general, money used to pay tuition costs directly doesn’t count as income, while other funds do. Student loans and Pell Grants never qualify as income, while other grants used for direct education expenses aren’t reported as income.
“Qualified expenses are specific to tuition, fees, books, and supplies required to matriculate,” said accountant Eric Nisall of Accountlancer. “It doesn’t include room and board, travel costs, anything that isn’t a requirement of enrollment.”
Some students qualify for work-study, which is often need-based. Work-study is considered to be a job, and any proceeds are reported as income. If you have any expenses directly related, you might be able to deduct them on your taxes.
Some schools award grants and scholarships that aren’t allowed to be used for qualified expenses; those must also be reported as income. Students must also be attending an accredited university to avoid having any grants and scholarships count as income.
If you receive more in scholarships than the cost of tuition and other qualified fees, you’ll have to report the difference on your taxes. Don’t worry. You’ll never owe more in taxes than you earn.
The IRS states that any money received “for teaching, research, or any other services required as a condition for receiving the scholarship” must be reported as income. If you worked as a TA for a professor, that income will count, but your department scholarship won’t.
Students worried about owing taxes should collect any related information throughout the year and reference that information when filing.
Still unsure? The IRS has a Q&A tool that will determine if the money you received counts as taxable income.
How Students Can File Their Taxes
Students needing to file their taxes can use the free versions of Turbotax, TaxAct or other tax programs. Filing taxes is simple for most college students, since they only have a couple forms to fill out. Your college might send you a 1098-T form that you’ll use to file your taxes.
You might also get a 1098-E for any student loan interest you paid.
A personal accountant can help, but is likely overkill for a simple return. Services like H&R Block can also handle tax returns, but they might charge too much for what could be a 30-minute process.
Make sure to have all your forms organized before you file your taxes. The deadline to send out tax forms was Jan. 31, but if you moved during the year or have your documents sent to your parent’s house, you might not have gotten everything.
Go over those forms to verify the information. It’s not uncommon to see the wrong social security number or a misplaced comma, so don’t take your tax forms as gospel.
If you’re still confused, contact your college’s financial aid office. Some community centers also offer tax prep if you can’t afford to hire someone.
Ashley says
I was adopted when I was around 8 they gave me a scholarship but I’m still have in to borrow and beg for things I need for school. Do I qualify for Anything I do t have to pay back right ways
Robert Farrington says
Some states offer grants for those in foster care and/or adopted. Find your state here and see: Financial Aid Programs By State.
Sha says
I received $2400 in pell grant , this covered my classes & books from the bookstore. Do I put this amount where it asks tuition/fees paid? Do I put the cost of the book in qualified expenses? Most of all do I include the $2400 as income? Didn’t receive 1098-T. All paid with pell grant. Your assistance will be greatly appreciated. Little confused & unsure. Thx
Robert Farrington says
You would only report tuition, fees, and books you paid for out of pocket. If your grant covered it all, you don’t get to deduct anything from your taxes.
Sadie says
If I was awarded a Scholarship at the end of spring semester for the following fall semester but ended up withdrawing that fall semester and paying back the entire money awarded from the Scholarship, does that get reported as incoming income if it was given back before the end of the year? I did receive a 1098-T form that reflects the amount awarded.
Robert Farrington says
You would determine the amount that you used, and only report that. If you didn’t use any, then don’t report it. Save your records of the return payment in case the IRS asks.
Sean says
During my two years of university, my scholarships and grants didn’t fully cover my tuition, fees amd books for my degree. During my Junior year I received more scholarships and received a refund. Is it possible for me deduct my prior expenses from this year’s refund if I can show I paid that money for my degree?
Robert Farrington says
No, educational fees are a calendar year deduction. You can’t go back and claim.