This upcoming semester my financial aid will cover more than enough for my school. There will be around $2000 in excess after it’s applied to my tuition bill. Will I receive that money as a financial aid refund from the school? If so, I know it’s going to be taxed but do any of you know what percent is taxed? And will I just report it on the form when i file my taxes and then pay the money to the IRS? I also worked this summer and I wanted to know how much money is it possible to exclude from fafsa?, because I heard that you are able to “shield” a portion of it on fafsa and then report the rest. I’m not really sure how this stuff works.
You will get the $2000 if it is from sources that allow it to be given to you. Some grants and scholarships are only allowed to be used for tuition, or fees, or room and board. Loans and Pell grants are allowed to be refunded to you. If you have any questions, ask your FA office.
The taxes are more complicated. Any amounts not used for tuition, allowed fees, and books is taxable, so that includes room and board, insurance, some student fees for transportation, social items. Loans are not included, so if anything was paid (or refunded to you) by loan money, that’s not part of the unearned income.
You will get to exclude some of the total of unearned income (I think it is $2000) but the rest will be taxes at your parent’s taxable rate (10%-38%) after your personal exemption of $6400(?). But that $6400 will also include anything you earned this year.
Tax programs like Turbo Tax and Tax Act help with the calculations.
FAFSA has different calculations. The ‘shielding’ you are talking about is work study earnings. FAFSA does have a way of including earned income above $6250, but you don’t have to include work study earnings in that figure.