<p>If part of my D's room and board is covered by grants and scholarships (about $8K/year) she must file taxes, is that amount added to combined family income for the next year's financial aid calculations? Does she pay the tax on April 15th next year or at some other point (like after graduation when she will start repaying her loans) and exactly how much tax is that likely to be?</p>
<p>As you can imagine from the question, money is tight and I want to be sure that we (both parents and child) fully understand all the implications of choices made now. Any parents out there familiar with the "next steps" in financial aid land....?</p>
<p>She files a tax return for the year of the income, just like with any income. So the grants/scholarships received during 2010 in excess of tuition/fees/required supplies would be filed and paid on a 2010 tax return(due by April 15 2011). Remember you are going by calender year for taxes, not school year. </p>
<p>It won’t impact future financial aid. FAFSA requires you to report the students AGI from their tax return but has a question that asks for any taxable scholarships/grants included in the student’s AGI. The taxable scholarships/grants included in the AGI are deducted from the AGI in the EFC formula so that they do not impact the EFC. For instance if the students AGI is $13,000 and the taxable scholarships are $8,000 then the $8,000 is deducted from the $13,000 leaving only $5,000 student income to be considered in the EFC formula.</p>
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there is no combined family income. Student income and parent income are treated quite differently in the EFC formula.</p>
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Difficult to say. It depends on what other income the student has. a student that is claimed on their parent’s return still gets the standard deduction which is $5700 this year. So the 1st $5700 income will have no tax. Income over that will be taxed at whatever tax band it falls into. The 1st tax band is 10%. You may also have State taxes depending on your State (our state does make students pay state taxes on the scholarship income, some States may not). .</p>
<p>Thanks swimcatsmom, that helps clarify. It just seems a little crazy to be taxing student aid, but it doesn’t seem likely that it will, in and of itself, amount to too much money with the deduction. The IRS website wasn’t straightforward - or nearly as helpful!</p>