My daughter receives some grant and scholarship monies and her remaining qualifying expenses are paid from a grandparent-owned 529 plan.
If, say, she earns $1K from a work study job in a semester, are we required to reduce any 529 reimbursement by 1K? (That would assume work study income is required to be applied to covered expenses – an inaccurate assumption, I would guess.)
Since work study money is payment for a job and is considered taxable income (there is withholding, so she doesn’t keep the full amount), I wouldn’t think it’s treated the same as grant/scholarship money. We always apply the full amount of those funds against expenses before reimbursing the remainder from the 529.
DD was eligible for work study but didn’t get a job because of Covid. Our agreement with her was that her work study money went towards the “personal expenses” and “books” categories as the amounts were close to equal on the award letter. We have the 529 funds get disbursed directly to the college and the grant gets applied to her account. This semester, we paid for her books with some small scholarships she got and gave her a bit of spending money to cover what she would have gotten from work study but she didn’t have anywhere to spend it. No change to the withdrawal from the 529. Not sure if that is helpful.
Per several searches, work study earnings ARE generally subject to state and federal tax. Of course, if $1K were her only earnings for the year, her AGI would be well under the taxable threshold.
But if someone were to get a good-paying summer job, for instance, or hold down a second non-FWS job during school, the total AGI could climb over the taxable threshold and the work study earnings would be subject to tax.
@sybbie719 IIRC, work study income IS taxable income (if the amount is over the threshold that would require taxes be paid). It’s not included as income for the student on the FAFSA in subsequent years.
@BelknapPoint am I right about WS income being taxable?
However, if the student is anticipating earning a low amount over the year, they can elect to have no taxes withheld. That is what my kid did.
If a student works for their school, they don’t pay FICA. The income is taxable otherwise, both for federal & state. The filing threshold for my state is lower than for federal, and I have had students who chose no withholding … only to discover that they had to pay the state come tax time.