<p>After my first year in university, I will be receiving around $8,000 in excess funds. Will this be taxable? And to what degree? Would it be better to spend it all?</p>
<p>Without knowing your particulars, it’s not possible to say accurately. The way it works is that any GRANTS you get that exceed your tuition, fees and books have to be reported as unearned income, and that COULD result in additional taxes for a person. If those excess funds are due to loans, they are not reportable for tax purposes. If you found another way to pay for tuiton up front, and then grants came through and you can match these funds up with what you paid through loans or out of pocket, you are okay. </p>
<p>As for spending it all, it depends. Are you borrowing money on an unsubsidized basis next year? Better to use this to pay. Just be aware that you will be hit up for it at 20% if sitting there as an asset on the day you file FAFSA unless you keep it clearly identifiable and traceable as financial aid/scholarship proceeds. Once you spend it, you can’t put any funds back for that protection for the amount. What are your finanical aid and financial issues this upcoing year?</p>
<p>Not only will that $8k be likely taxable, but all non-loan (free money) funds that aren’t used for tuition, books, fees are taxable. So, those funds that are going for room and board are also taxable. </p>
<p>Funds from loans aren’t taxable. If that money is from loans, see if you can cut back the borrowing. If you still need funds, can you work a summer job? It’s not a good idea to be borrowing just to have pocket money, etc.</p>
<p>My incoming funds for my first year are:
•$4500 merit scholarship
•$3090 from Bright Futures
•$4000 grant
•$500 local scholarship</p>
<p>I do not have to pay for tuition or housing. My expenses for my first year will be at most $4,000. </p>
<p>The excess funds that I receive will be deposited into a bank account that is meant for my financial aid. </p>
<p>My aid doesn’t fully cover my COA let alone my tuition and fees, housing, and books so I shouldn’t be taxed on the grant, correct?</p>
<p>EDIT: Didn’t see mom2collegekids’ post. </p>
<p>
How much do you think will be taken? I was hoping to use this money to study abroad and for summer courses.</p>
<p>money for housing is taxed. COA is irrelevant.</p>
<p>Anything over tuition, books, fees is taxed.</p>
<p>however, if you don’t earn much, then you may not “owe” anything.</p>
<p>Subtract the cost of tuition, mandatory fees and required books and supplies from $12,090. If the answer is a positive number, that amount will be taxable income to you. All else is irrelevant. There is a $6100 standard deduction for someone who can be claimed as a dependent on someone elses tax return. So if the result of the subtraction + any earnings from a job + any interest or dividends is less than $6100 you won’t actually owe any federal tax. Since you’re in FL state income tax isn’t an issue.</p>
<p>Also, since your are an incoming freshman, only 1/2 of the scholarships/grants and 1/2 of the tuition, mandatory fees and required books and supplies will be applicable to tax year 2013. So for 2013 it’s less likely you will cross the $6100 threshold.</p>
<p>
$12,090 - $7250 ($6450 tuition and fees + $800 books and supplies) = $4840</p>
<p>$4840 + $4,000 earnings = $8,840 </p>
<p>$8840 - $6000 = $2840 in taxable income</p>
<p>If I keep my earning under a certain amount, I won’t get taxed? Do you know how much will be taken?</p>
<p>
So I shouldn’t be taxed at all? Or…my income will be higher because I won’t have a state income tax deducting from my total amount?</p>
<p>
Now, I see what you mean. If I keep my earnings down to a minimum, I won’t go over.</p>
<p>The standard deduction for 2013 is $6100 so you would owe tax of 10% on the $2740 or $274 for a full year. You are still better off working as much as you planned. And for 2013 you should owe little or nothing since you will only have 1 semesters grants/scholarships and perhaps wages depending on how much you’ve worked already this year.</p>
<p>FL doesn’t have an income tax so you won’t pay them anything and since I don’t see how you would be itemizing deductions, it doesn’t affect your federal tax.</p>
<p>For 2013, add up what you will be getting. You may not be getting the full grants, scholarships, BF money or any of it for first semester. The way it usually works is that you get half those amounts PER SEMESTER, so half will be credited to your account for the fall and the other half for the spring. So at the end of the year, you add up what grants, scholarships you got and subtract out what you PAID in books, certain school supplies needed for a course (read the rules on this), tuition and fees. That is your unearned income due to grants/scholarships for college that would be reportable on your tax form. Then you have your earned income that goes into that slot. You subract ou the $6100 and you pay tax of 10% or whatever on what’s left. Even if you have to pay that 10%, you’re better off earning more rather than less money. 90% of amount earned is better than zero. </p>
<p>If you are paying for summer school tuition as well, that can bring down the amounts even more. It’s next year when you have two semesters of awards, where the numbers might be up there, but for this year, you are likely only going to see half of what you are getting for the full year, just the way semesters tend to be split up.</p>
<p>WHat kind of grant are you receiving?</p>
<p>If it is not an entiltlement grant (Pell), but an instiutional grant, the grant may be reduced of offset by the local scholarship/merit $ and bright futures. Does your school stack all of this aid?</p>
<p>I see. I was afraid that I’d be taxed an outrageous percentage. Like 40%. But if it is only 10% then, just like you guys have said, I have nothing to worry about. </p>
<p>It’s good to hear that this year will be fine. My income will, hopefully, be more in the year of 2014. </p>
<p>Thank you all for clearing this up. I was afraid I would be taxed greatly. </p>
<p>@sybbie Um…I’m not sure. It’s a freshmen grant. I know it won’t be reduced because my COA had not been exceeded. I’m receiving about $12,000 and COA is $20,000. My prepaid plan is not factored into funds received.</p>
<p>My schools stacks it. The merit scholarship is from them, the grant is I’m assuming, federal, Bright Futures was awarded to me by the state, an my scholarship is local. They’re only giving me that one scholarship.</p>
<p>You should talk to your parents about the tax situation. Parents can take an American Opportunity Credit(AOC) if they pay qualified education expenses(QEE, tuition, mandatory fees, required books and supplies). $4000 of QEE gets a $2500 tax credit for them, up to $1000 of it is refundable. If the terms of the scholarships and/or grants allow you to do so, you can apply some of them to R&B, declare that amount as income to you, pay a little more tax on that and then payments your family makes can be applied to QEE and your parents will get the credit. Generally, families as a whole make out better that way as the amount of the credit they would get is more than the extra tax you would pay.</p>
<p>However, you mentioned having pre-paid funds and payments made with tax advantaged funds can’t be used to claim the AOC. IRS Pub 970 has the information about taxable scholarships/grants and the AOC:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>You should keep good records for tax purposes. Save all your school itemized bills, statements of accounts(often online), records of payments and save all your receipts from required book and supply purchases.</p>