Hey wait, my DD is getting a grant for housing but it only covers 1/2 of the cost, will we be taxed on that money? Or not since it is a grant and not full cost?
@SeeksKnowledge Any grants in excess of qualified expenses (tuition fees books basically) are taxable. However your D will likely have the $6300 personal exemption and such grants are earned income for that purpose, so unless she has more income than that, or you move more to get the AOTC, she shouldn’t owe any tax.
You are taxed on any amount over the QEE. If you receive $100thtoward room and board, you are taxed on that.
If your daughter receives scholarship or grant money that exceeds qualified educational exoenses…then yes…there will be a tax liability…unless the amount is below the amount she can earn without a tax liability.
Grants or scholarships that pay for housing are taxable income to the student, starting at the first dollar.
And a slight correction to mamag2855’s post #59: the kiddie tax kicks in after the child has $2,100 in unearned income. The first $1,050 of unearned income is not taxed, the next $1,050 is taxed at the child’s rate, and only the amount above $2,100 is taxed at the parents’ highest marginal rate.
Ok which is it?
Grants or scholarships that pay for housing are taxable income to the student, starting at the first dollar.
or
Any grants in excess of qualified expenses (tuition fees books basically) are taxable.
Our housing grants are less than Qualified expenses.
Those two statements are not mutually exclusive. Is your student receiving grants/scholarships that can only be used for housing? How are your student’s qualified expenses (tuition, fees, required books and supplies) being paid for?
^Yes grant only used for housing, rest of tuition being paid combination of ways,merit aid, 529 funds, and subsidized loan.
Don’t know if this has been mentioned, and it isn’t usually a big fee, but at some schools if you want to be on a monthly payment plan you pay a fee for that. Not all schools offer a monthly option, though, and not all charge a fee for it.
Is the grant restricted, such that it can only be used for housing? If that’s the case, my guess is that it’s fully taxable. And considering the sources of funds used to pay for qualified expenses, even if the grant isn’t restricted to housing costs only you may want to use it for that expense so that you can claim at least a partial AOTC based on the subsidized loans.
Yes it’s only for housing and the school just automatically applies it. I hope you are wrong and we don’t get taxed as that would be pretty sh*tty! I can see if we were getting more funds than we had to pay then it would taxable, but it doesn’t make sense to me that we’d be taxed when more $$ is due from us. It’s just a partial housing grant, we still owe more.
If the grant by its terms is required to be used for housing, than it’s fully taxable. See IRS pub. 970, pg. 5:
https://www.irs.gov/pub/irs-pdf/p970.pdf
It doesn’t matter that it’s only a partial housing grant; you’re only taxed on the grant amount that you actually receive.
You don’t have to accept the housing grant if you don’t want to pay taxes on it. The school or scholarship donor doesn’t set the tax rules, the IRS does.
My daughter’s school is very good about applying funds in the way most favorable to the students. I don’t think they are really thinking about tax issues, but if a scholarship can only be used for tuition, they apply that first and leave funds that are more flexible for other billed costs or even to be rebated to the student if the terms of the grant/scholarship allow. The school will not rebate merit money or school grants, so applies those to bill costs first. It leaves those funds that can be rebated to the student for last.
Art supplies, required professional quality fabric shears for costume design class, theatrical make-up, all that stuff can be claimed as part of the AOC - just like books.
Nice surprises (costs included): free laundry, free printing, no school health insurance. Books are also less than the school estimated.
Not so nice surprises (unexpected or higher than expected fees): parking permit, parking tickets (after the 3rd ticket there is a $100 penalty), activity fee if you enroll in a PE class.
An aside: I ask myself how much do I think a reasonable monthly cost of living would be for a young adult if the person was NOT studying but was living outside the family home. I figure it might be about $2000-ish per month at the lowest. So, if college out-of-pocket costs come in roughly around that mark, I figure $20K per out-of-pocket per school-year seems reasonable for a basic college education. Does that make sense? As long as I can keep the total costs to our family at that level, I’m not so concerned about hidden costs.
Except that usually the person needing $2000/ month is working to pay that sum, while a college student isn’t and most families can’t afford to support a young adult with $20k per year.
There are still costs such as health care expenses, vehicle expenses if the student has a car, clothes, personal care, cell phone, etc. that need to be paid in addition to tuition, R&B, and books. It’s not as though you write one big check and that’s it. I’ve found that my grocery bill at home has declined and utilities are slightly less. Otherwise, I don’t see much in savings with D away at college. D covers her gas, some clothes and personal care, and her spending money, but she had a job during HS so she was already paying for many of those items.
That’s more than twice the poverty level for a single person, and almost as much as the poverty level for a family of four. It’s the after-tax equivalent of more than $15 per hour (twice the Federal minimum wage!) for a full-time worker.
That poverty rate seems to be detected from real life COL, correct? At least I’ve always thought so.
Yes, I’m thinking that a student is not working, but rather is gaining the benefit of learning with a long-term ROI. I’m thinking $20k to cover this schoolyear months seems reasonable (unreachable for many, including us with our EFC coming in around $20k, so student loans are being used).
Isn’t there talk about the $10k BA?
Not meaning to derail this thread. Will stop now. 