<p>I have read over and over again that most schools do not give aid exceeding need. However, every once in a while I then read about someone getting all need met plus spending money or similar deal. How does this work out then? Do they have to claim the excess as income when tax time comes around? I'm just curious...</p>
<p>All scholarship and grant money that is not spent on tuition and IRS approved expenses is taxed. Room and board are not approved expenses. So yes, if you have grant or scholarship money that is in excess of tuition, books and lab fees there will be a tax hit.</p>
<p>The cost of attendance includes personal expenses so some students will receive that. As noted, any financial aid for room, board, or personal expenses would be taxable income.</p>
<p>Not all aid is need based, so there are students who will receive aid in an amount that exceeds their need. If any aid in an aid package is need based, it must be kept to an amount such need is not exceeded. There are times that need can be exceeded & a student gets need based aid … that would be if Pell is awarded with a very large merit scholarship (like a full ride). An unsubsidized loan can be in a package & the total package could exceed need … because unsub loans are not need based. Other than that, though, when there is need based aid in a package, aid has to be kept to COA-EFC.</p>
<p>Private schools that use Profile may appear to exceed need … but their Profile EFC calculation can actually be less than the FAFSA EFC, so they may not really be exceeding need (they’d be using their own funds for that, not federal funds).</p>
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<p>Just to clarify, there is only tax due if it exceeds the student’s standard deduction (and exemption if not claimed by the parents).</p>
<p>Don’t forget state taxes, too! Our state’s filing requirement is lower than the federal requirement … and the state tax for my D’s scholarships was ridiculous!</p>
<p>Thank you. This is all very interesting. I am relieved my D’s scholarship and grant covered tuition only!</p>
<p>I then read about someone getting all need met plus spending money or similar deal.</p>
<p>If a student gets a “full ride scholarship” and also qualifies for Pell, then the student would still get that Pell grant.</p>
<p>* I am relieved my D’s scholarship and grant covered tuition only! *</p>
<p>???</p>
<p>Grants are not taxed. </p>
<p>I don’t understand why people fear getting scholarships in excess of tuition. **It’s still cheaper than paying the actual costs! ** My son had a near full ride scholarship. He paid very little in taxes for the amount that was used for housing and meal plan. The child is taxed, not the parent. And, since kids often don’t earn much, their rate is low…and the first few thousand that they earn aren’t taxed at all.</p>
<p>People need to remember that even if the child were outrageously taxed at 30% rate (which they’re generally not), it’s still cheaper than paying 100% of the cost yourself. You still benefited by paying 70% less!</p>
<p>If your child is given $5k scholarship to pay all of her dorm, then even if she had to pay $1k in taxes (which she likely would NOT have to pay that much at all), then you still got her dorm for only $1k per year, rather than $5k!</p>
<p>True, M2ck, but since my D’s aid was enough to cover tuition, and we are paying room and board, I am glad that I don’t have to figure out the taxes, what’s covered, not covered, etc. Life is simplified, her aid made everything manageable for us, and it’s not adding one more complexity to tax time!</p>
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<p>Really? I don’t think so. I believe if the grant EXDEEDS the allowable educational expenses (Tuition, fees, books), it IS a taxable amount.</p>
<p>I believe if the grant EXCEEDS the allowable educational expenses (Tuition, fees, books), it IS a taxable amount. </p>
<p>that is correct.</p>
<p>I believe if the grant EXCEEDS the allowable educational expenses (Tuition, fees, books), it IS a taxable amount</p>
<p>Can you clarify?</p>
<p>Are you saying that the low income kids who get full ride need-based grants to Harvard are paying taxes on the grants for their housing, meal plans, etc?</p>
<p>that could be very shocking to low income kids who are getting $15k per year in need-based grants towards room and board for some of these schools.</p>
<p>Well, even if they aren’t … they should be. This was a sticky issue for me with the full ride kids, to be honest. If they put something on a verification worksheet that showed me they had a ton of grants/scholarships, I had to have them amend/file returns when necessary … that’s the nature of the beast. One girl had to pay a couple hundred in state/federal taxes, but her mother thanked me for saving them from possible future penalties. Another girl never completed her verification, forgoing Pell money, because she refused to file.</p>
<p>If they are shocked, it is because they ignored the 1098-T that was sent to them. </p>
<p>Most schools do publish information regarding the taxability of scholarships/grants on their websites. The responsibility for knowing tax liability does fall on the individual, however.</p>