<p>Our S and a friend have close to full rides via need-based awards. This means that about $9K of the award is applied to room and board at their respective institutions. Both kids have earnings of about $1K also.</p>
<p>H and a person who advises the other family on taxes have both concluded that the room & board portion of their FA award is viewed by the IRS as income to the kid. (Even though, of course, it is actually a discount and they never actually see the money.) The kids therefore have to file, and after the standard deduction is applied they each owe about $300-400 in income taxes.</p>
<p>Does this comport with others' experience? H asked me to check here. :)</p>
<p>Yes that is correct. Any scholarships or grants (including federal need based grants such as the pell) in excess of qualified education expenses (basically tuition, fees and required supplies) are taxable income to the student. The rules are laid out in detail in IRS publication 970 pages 5-8.
<a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>
</p>
<p>My daughter had $2-3000 earned income in 2009 and about $9000 taxable scholarships/grants so has a bill for several hundred in federal taxes to pay plus some State taxes. Still a good deal overall though.</p>
<p>Same here, although in our state he is allowed to subtract grant money used for room&board from his federal taxable income. As a result, each year he pays a couple hundred in federal taxes, but gets a refund from the state of money withheld from his summer earnings. Make sure to check the rules in your own state about that.</p>