Tax aspects on need based and outside scholarships

Parent Cafe
1

<p>My daughter is going to attend the college this fall. She has received very generous need based aid at her college. My family contribution is such that I can afford to pay it. College has assessed that student self help portion (job and loan) is $1925 each semester or $3850 for one year; $1700 for student contribution. College budget (total 48,700) break down is $35000 is tuition and fees; $3100 is personal expanses; $10600 in room and board. Thus each and every student has to pay $5550 even if they receive full scholarships. This is very manageable money if someone plans and receives outside scholarships. </p>

<p>Thus, in addition to need based aid from Harvard, my daughter received $$$$$, from additional outside scholarships. For each year at Harvard, she would be receiving $$$$ in outside scholarships. Harvard aid office told us that these outside grants would counts towards her self help and student contribution. Harvard has told us that any outside scholarship money that is excess of $5550 student self help portion, can be used towards buying a computer).</p>

<p>This summer, she has been offered an internship that is a taxable income. I am paying for part of her room and board and rest is paid by need based Harvard scholarship grant. There is leftover money from outside scholarship that is beyond ($5500 self help plus $2500 for computer). This money will be used for room and board in the first year. So my question starts on taxation part of the scholarships: </p>

<p>We have to pay the federal and state tax on scholarship which goes from outside scholarship but I am to sure on which portion and that is my question pertains to. </p>

<li> Am I correct to assume that $35,000 and tuition and fees is not taxable? Or is it taxable?</li>
<li> The portion of the Harvard scholarship that goes toward the room and board is it taxable or not?</li>
<li> I am assuming that any outside scholarship that goes towards the personal expanses is also taxable </li>
<li> I am assuming that any outside scholarship that goes towards the room and board is also taxable. Harvard will reduce its grant if we were to take this portion of outside scholarship.
Could you clarify these issues as these questions pertain to many parents whose kids did attend or will attend the college?</li>
</ol>

2

<p>1. Am I correct to assume that $35,000 and tuition and fees is not taxable? Or is it taxable?
Tuition and fees are NOT taxable </p>

<p>2. The portion of the Harvard scholarship that goes toward the room and board is it taxable or not?
Room and board are taxable</p>

<p>*3. I am assuming that any outside scholarship that goes towards the personal expanses is also taxable *
Yes, taxable</p>

<p>4. I am assuming that any outside scholarship that goes towards the room and board is also taxable. Harvard will reduce its grant if we were to take this portion of outside scholarship.
It does not matter where money comes from - all above tuition and fees (and maybe books) is taxable,</p>

<p>5. Could you clarify these issues as these questions pertain to many parents whose kids did attend or will attend the college?</p>

<p>In fact it is pretty simple: ALL you scholarship income is taxable but you can DEDUCT expenses for tuition and general fees. The issue of deducting books is less clear. Some people do deduct; others not. Scholarship income will not have a negative impact on your FAFSA but you will owe federal (and State) income taxes.</p>

<p>The school will provide the student with a tax form that "should' include the reportable income from the school and "may" also report the outside scholarship. The amount to report annually might be different from the exact cash disbursements because of different reporting rules. </p>

<p>While most students will report this income as dependents, it is possible to claim a status of independent for tax purposes (not for FAFSA) and reduce the amount of taxes due. However, this reduction might also imcrease the tax bill for the parents. </p>

<p>Lastly, the tax rate should be about 10% of the taxable income (after deductions.)</p>