<p>I just read a thread where it was mentioned that scholarships are taxable. I was/am completely clueless on this. Can someone explain this to me in plain english? What about need-based grants and aid?</p>
<p>Thanks in advance.</p>
<p>Grants and scholarships that pay for tuition/fees and required books are not taxable. Grants and scholarships that pay for anything else (such as room and board) are taxable. For tax purposes need based grants (includin federal grants such as Pell) are treated the same as scholarships tax wise.</p>
<p>The IRS publication that deals with the taxability of scholarships/rants is IRS publication 970 (which also covers education tax credits etc)</p>
<p><a href="http://www.irs.gov/pub/irs-pdf/p970.pdf%5B/url%5D">http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>When you complete FAFSA the taxable scholarships/grants are included in the student AGI on the tax return. But you show them on one of the worksheets and the EFC formula deducts them from the AGI so they will not affect your EFC.</p>
<p>Phew! Thank you so much for the great answer, swimcatsmom. I was really scared for a minute there. I'm not lucky enough to even have anything close to my son's tuition covered by scholarships and grants, so I guess I don't have the luxury of worrying about being taxed.</p>
<p>um - congratulations :D</p>
<p>Glad to be of help and that your mind is put at rest. A lot of people have no idea that scholarships and grants may be taxable so get a shock come tax time. You may want to check out the publication to see if you will be eligible for any of the education tax credits such as the Hope..</p>
<p>Swimcatsmom - </p>
<p>Since I am a Gates Scholar, does this mean I will have to pay taxes on the part of the scholarship that covered the room and board? What if my family doesn't file a tax return (only income is my dad's Soc.Sec. disability)? Does this mean * I* have to file?</p>
<p>memberofthevrwc - it is your income so yes you will have to file if your income, including the taxable part of scholarships/grants and all other income, is high enough to require you to file taxes. Whether you owe taxes will depend on what other income, if any, you have and how much of the scholarship is in excess of tuition/fees/required books. The filing limit for a dependent this year to have to complete a tax return was at around the $5350 mark for earned income (but if you cannot be claimed as a dependent on someone elses tax return it is higher as you would have an additional personal exemption of $3300.) Scholarships/grants are treated as earned income for tax purposes.</p>
<p>A disclaimer here - I am not a tax expert and taxes can be complicated so get expert advice if you need it.</p>
<p>The filing limit for a dependent is $850 if it's unearned income. So if you have income from interest and dividends, you might have to file. And the personal exemption for 2007 is $3400.</p>
<p>Scholarships being taxable... sucks. That's all I have to say.</p>
<p>Yes my bad - the personal exemption is 3400 - sorry for the typo (too late at night). I did not get into all the reasons you may have to file because it gets complicated - rules for earning limits if you have having both earned and unearned income are different, if you are 'self employed' (which includes selling stuff like cutco and avon) the limit is even lower. Best thing is to check out the publication with all the rules
Publication</a> 501 (2007), Exemptions, Standard Deduction, and Filing Information</p>
<p>Fortunately some of the tax software is pretty easy to use and there is freefile online if your taxes are not to complicated. Though it is a good idea to have a little understanding when using freefile - one of the companies linked by the IRS actually got my daughters standard deduction wrong by a couple of thousand which could have cost her a few dollars.</p>
<p>ethary - yes. But it is better than not having the scholarships :)</p>
<p>College should have sent you a form called a 1098-T (I think) that lists what charges were for tuition and fees, and how much aid went towards those things, etc.</p>
<p>TurboTax, if you use it, will take the info off that form and determine what, if any, tax is owed.</p>
<p>Can you use scholarships to pay for your EFC? even if your financial need was already met? Can you just accept the scholarship and just save enough money from the scholarship to pay for the tax?</p>
<p>Most schools will reduce your need based aid if you receive other scholarships. Generally you cannot pay your EFC with scholarship money (unless there is no need based aid). The good thing is they will usually reduce loans and work study before they reduce grants.</p>
<p>what about scholarships when your paying full coa? Meaning private scholarship outside( from parents job)?</p>
<p>oops (jsut saw the "unless there is no need based aid"</p>
<p>You mean taxation wise? If they exceed the cost of tuition/fees/books they are taxable (the amount in excess). Even the Pell and SEOG grants are added to total scholarships to find out what is taxable.</p>
<p>yes taxation wise, wishful if it were excess of COA but it is not, but at least all four years
Not eligible for any other FA, so it would only be that at this point</p>
<p>What about if scholarships exceed your need, can you still use them to pay your EFC?</p>
<p>The taxable amount is not for what is in excess of COA. COA includes tuition/fees/books/room and board/possibly miscellaneous expenses/travel expenses. Only scholarships/grants covering the cost of tuition/fees/requiredbooks are tax free. Those used for room and board and other expenses are taxable.</p>
<p>A scholarship in excess of COA sure would be nice though - taxable or not!</p>
<p>
[quote]
What about if scholarships exceed your need, can you still use them to pay your EFC?
[/quote]
</p>
<p>If your COA is 20,000 and your EFC is 14,000 then your need is 6000. If you get a 10,000 scholarship then generally 6000 of the scholarship would cover your need and the remaining 4000 could be used for your EFC. </p>
<p>Tax wise if your tuition/fees end up costing $8000 then that part of the scholarship is not taxable - the remaining $2000 (which is being used to pay other expenses) is taxable.</p>