<p>Before I start, just wanted to say my school's financial aid policy is weird, but it is what it is. My question is, if all of my outside scholarship monies goes to reduce my University's grants, will I still have to pay taxes for them? I was under the impression that I only have to pay taxes if my scholarship monies goes to me, which it won't, but please correct me if I'm wrong. </p>
<p>Basically, any info on taxes on scholarships will be helpful, please.</p>
<p>Thanks!</p>
<p>Any scholarships *and *grants over the amount of tuition/fees/required books is taxable. The source of the scholarships/grants (university/federal/private) does not matter and whether it is paid direct to you or the school does not matter. Only whether they exceed the tuition/fees/books.</p>
<p>For instance if your tuition and fees and books are $10,000 and you have $5,000 in scholarships, $4,000 in University grants, and a $2,000 Pell grant then you total scholarships and grants is $11,000 of which $1,000 will be taxable.</p>
<p>All my daughters scholarships and grants were paid direct to her school. They did exceed the tuition/fees/books and a large part went towards room and board. The part that went to room and board was taxable income.</p>
<p>The relevant tax publication is IRS970</p>
<p><a href="http://www.irs.gov/pub/irs-pdf/p970.pdf%5B/url%5D">http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Schools send out a 1099 to the student at the end of the year so just deduct the cost of tuition, fees, and books and declare the remainder as taxable income. Search for a relevant thread by "Taxguy" - it explained a lot to me when I read it a couple of years ago.</p>
<p>swimcatsmom, thanks for the link, it was very informative. a question though, should i decline the outside scholarships i received then? or it doesn't make a difference either way? my school basically gave me everything and the outside scholarships money will just reduce the grant they gave me. </p>
<p>bessie, thanks, i'll see if i can find the thread.</p>
<p>jessy - taxwise I don't think it makes a difference whether the money is from a grant or a scholarship. </p>
<p>Otherwise i don't know - difficult call. If the grants are need based and there is a possibility your financial situation would change then you may be better off for future years with the scholarships.</p>
<p>...but on the other hand, if your grants are guaranteed in any way, then it would be generous of you to decline the outside scholarships in the hopes that they might go to another deserving student. One other possibility is trying to defer the scholarship monies in case your grant situation changes and you would want to utilize the scholarship funds in future years instead.</p>
<p>best wishes!</p>
<p>is the work study program part of the grant that may be subject to tax just like what Swincatsmon said above?</p>
<p>Your child's tax obligation will be far less than the grant, if the money can be put to good use, then keep the grants and pay the taxes and you should still come out ahead.</p>
<p>
[quote]
is the work study program part of the grant that may be subject to tax just like what Swimcatsmon said above?
[/quote]
No. Work study is not a grant. It is income you earn in a work study job. While you are awarded WS as part of your financial aid package you still have to find, apply for and get a WS job then work to earn the money. It is paid direct to you in a paycheck and the amount you actually earn will depend on the pay for the job and the number of hours you work (though you cannot earn over the WS award). It is **not **a grant. Work study income is taxable income for federal and State tax just like any job (assuming you earn enough total income to be liable for taxes). But it does not incur medicare and SS taxes.</p>
<p>The benefit of WS earnings as opposed to regular income is that it will not negatively affect your EFC the next year as FAFSA will deduct WS income (and taxable income from scholarships/grants) from your AGI before calculating your EFC.</p>
<p>
[quote]
Your child's tax obligation will be far less than the grant, if the money can be put to good use, then keep the grants and pay the taxes and you should still come out ahead.
[/quote]
bessie - I think the OP was saying that the scholarships will just be used to reduce his grants so they don't actually benefit him. If that were not the case I absolutely agree that it is better to have the scholarship and be taxed on it than not have the scholarship.</p>
<p>swimcatsmom -
"All my daughters scholarships and grants were paid direct to her school. They did exceed the tuition/fees/books and a large part went towards room and board. The part that went to room and board was taxable income."</p>
<p>So do all scholarships and grants first go towards tuition automatically? Is it necessary to make sure that the school knows to apply the awards to tuition before room and board? What would happen in this case:</p>
<p>Tuition, Fees, and Books: $12,000
Room and Board: $8,000</p>
<p>Someone has $2000 in scholarships, $5000 in grants, and it was all applied towards room and board (for whatever reason). The parents paid for tuition and fees.</p>
<p>Would all of that money be taxed, even though the total "free money" was less than the value of tuition, fees, and books?</p>
<p>The taxes calculated on it depend on the type of scholarship or grant received.Find out if the financial benefit that you gain is tax-free, which it may be if it is utilized for paying tuition fees, or buying books or instruments used as a part of the instructional curriculum.
How</a> To Calculate Taxes on Scholarships and Grants | eHow.com</p>
<p>Bennis, that odd scenario seems like a timing issue. Either tuition plan was already processed before the scholarships were recognized or room&board were due before tuition. But it doesn't matter. For tax purposes, it's all the same. The government aims to encourage people to seek out a college education by offering the tax credits (or deductions). Room & board are not included, because they're not exclusive to a college education.</p>
<p>jessy09- by some interesting chance, would your school happen to be Georgetown?</p>