<p>A parent asked me if his child would lose some/most/all of Pell eligibility if she accepted a big National Merit Scholarship from a college.</p>
<p>I know that the tuition and books part of the scholarship is not taxable, but the housing part is. The student (not the parent) is taxed.</p>
<p>So, if the housing part was worth - say - $5000 per year - would the $5k get claimed on FAFSA as "student income"?</p>
<p>And, if it's claimed as "student income" is much of it protected? Aren't students allowed to have around $4500 in income that doesn't count?</p>
<p>So, if a family was qualified for almost full Pell, but then the student is taxed on $5000, would the family then lose a chunk of Pell for the following year.</p>
<p>I realize that any negative affect would be for years 2, 3, & 4....not the first year.</p>
<p>It will not affect the EFC at all. Any part of a student’s income that is from taxable scholarships or grants will be included in the student AGI that is reported on FAFSA. But another question asks how much of the AGI is from taxable scholarships, grant, and/or work study. The amount reported in this question is deducted from the AGI in the EFC formula before the EFC is calculated. So if the AGI is $7,000 and $5,000 of that is from taxable scholarships/grants then only $2000 is used to calculate the EFC (and $2,000 is under the protected income allowance so will have no affect).</p>
<p>Just as an fyi so they are prepared, grants and scholarships used for non qualified expenses are taxable. This includes need based grants such as the Pell. My daughter gets hit with a chunk of taxes every year (though we pay them for her). Not complaining (much :rolleyes:) as obviously it is better to have the grants/scholarships than not, but it comes as a surprise to people that need based grants may be taxed.</p>
<p>She would get the standard deduction but not the personal exemption (as her parents are probably claiming her as a dependent). As far as I can recall the standard deduction for 2009 was $5700 but changes every year. If her total income is under the standard deduction and she has no unearned income to complicate things (taxable scholarships are treated as earned income) then she would not be required to file.</p>
<p>It will not affect the EFC at all. Any part of a student’s income that is from taxable scholarships or grants will be included in the student AGI that is reported on FAFSA. But another question asks how much of the AGI is from taxable scholarships, grant, and/or work study. The amount reported in this question is deducted from the AGI in the EFC formula before the EFC is calculated.</p>
<p>so, that is the significant part…it’s subtracted out! Yeah!</p>
<p>*She would get the standard deduction but not the personal exemption (as her parents are probably claiming her as a dependent). As far as I can recall the standard deduction for 2009 was $5700 but changes every year. *</p>
<p>Apologies for being dense…</p>
<p>So, if parents claim the student, then for the student’s tax return, she is exempt from paying any tax on the first $5700 or so income. Correct? </p>
<p>So, if the student has $5500 in taxable scholarships and no other income, she pays no taxes.</p>
<p>But, if she has $5700 in taxable scholarships and maybe $3000 in income from a summer job, that is $8700…with the first $5700 exempt…so on the remaining $3000 (from summer job), how much would the student (not the parent) would pay about how much in income taxes??? </p>
<p>I realize that the student still comes out ahead even if she has to pay taxes on the $3000 earnings from a summer job, but I’m just wondering. </p>
<p>I also note that Work-study income has no effect on EFC either. Right?</p>
Yes. If the parent claims the student they get the dependent exemption, but the student still gets the standard deduction.</p>
<p>I think the basic tax rate is 10%. So if a student has $8700 income then after the $5700 (2009 figures) standard deduction that leaves $3000 to be taxed, so at 10% that would be $300 tax. Unearned income rules are more complicated. They may also have to pay state taxes, depending on the state.</p>
<p>WS does not negatively impact the EFC as it is deducted from the AGI, just like taxable scholarships. WS income is taxable income for federal taxes, state taxes (depending on the state), but does not attract FICA.</p>
Yeah!</p>