Tuition costs? tax credit, itemized deduction, etc.?

Parents Forum
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<p>"<<<< If a student receives a "full-ride" scholarship, he/she would have to file "taxes". Is it right? YES >>>></p>

<p>Wow! Is this true???? How about full-ride grants or F/A (not loans)? If one but not the other, why?</p>

<p>Grants and scholarships are all the same and all taxable. However, there are expenses that do offset this income. If the money received exceeds what is paid towards excludable expenses (tuition, books, and fees), the student will owe taxes. In so many words, if someone GIVES you money to cover room and board, travel, or other expenses, taxes will be due on the grants and scholarships. The good news is that scholarship income is excluded from the FAFSA calculations and not subject to social security taxes. </p>

<p>PS It is absolutely true that one has to pay taxes on scholarship income. I've got a a form ready to send to the IRS on the 15th :D</p>

<p>You can read more about this at <a href="http://www.irs.gov/individuals/students/article/0,,id=96674,00.html%5B/url%5D"&gt;http://www.irs.gov/individuals/students/article/0,,id=96674,00.html&lt;/a&gt;&lt;/p>

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<p>The part of scholarship for Rooom&Board is considered to be an income by IRS. That is why one have to pay taxes. From the IRS point of view, a student recieves an income and then pays it back to college for Rooom&Board.
According to this logic, can a student decrease his/her taxes by claiming tax credits?</p>

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<p>So, do you mean that all these low income kids that get full-rides (because their families have no money) have to somehow come up with taxes on the $15K+ or so that they are given for R&B, books, etc? How is a low income family supposed to pay the taxes on that???? I am sure many low-income families that are depending on getting money for college have no idea that they will have a tax liability for the "non tuition" part. This is like the "Oprah giving cars to the poor" deal -- many had to sell the cars to pay their tax liability on the "gift".</p>

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<p>JL. check the latest posts in this thread:</p>

<p><a href="http://talk.collegeconfidential.com/showthread.php?t=129442&page=1&pp=40&highlight=taxability%5B/url%5D"&gt;http://talk.collegeconfidential.com/showthread.php?t=129442&page=1&pp=40&highlight=taxability&lt;/a&gt;&lt;/p>

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<p>TanCat, the problem is that room and board is an expense that does not qualify:</p>

<p>Qualified education expenses do not include amounts paid for:
Insurance,
Medical expenses (including student health fees),
Room and board,
Transportation, or
Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. </p>

<p>See <a href="http://www.irs.gov/publications/p970/ch02.html#d0e1510%5B/url%5D"&gt;http://www.irs.gov/publications/p970/ch02.html#d0e1510&lt;/a&gt;&lt;/p>

26

<p>
[quote]
So, do you mean that all these low income kids that get full-rides (because their families have no money) have to somehow come up with taxes on the $15K+ or so that they are given for R&B, books, etc?

[/quote]
</p>

<p>Scholarships and grants used for required books, equipment, and supplies are not taxable income, but scholarships used for room & board, travel, and incidentals are indeed taxable. </p>

<p>Many financial aid officials (FA0's) haven't done a great job of making this fact clear to the students they advise, and some FAO's with whom I've talked were actually not aware of this fact!</p>

<p>It is something that students with generous scholarships need to take into account, so they don't get unpleasantly surprised at tax time.</p>

<p>
[quote]
How is a low income family supposed to pay the taxes on that????

[/quote]
</p>

<p>The scholarship income is taxable to the student, not the parents. </p>

<p>If the student is not a dependent of her parents, the first $8,200 of scholarship income will not be subject to tax (because it will be wiped out by the standard deduction of $5,000 and the personal exemption of $3,200.) The next $7,000 or so of taxable income above that level will get taxed at 10%.</p>

<p>So if someone had a very generous scholarship that covered $15,000 of expenses over and above "eligible tuition and required fees, books, equipment and supplies" (which includes tuition, all required fees other than room & board--so lab fees, student activity fees, etc.) they could potentially have $700 in Federal tax liability (and possibly some state liability as well.)</p>

<p>In practice, very few students have had such generous grant aid until very recently. That's because almost all financial aid packages at residential colleges had a component of "self-help" loans which were not taxable, since they weren't income.</p>

<p>With more generous grants available to low-income students these days, students will need to budget for taxes (and in extreme cases, might still need to borrow some money to pay their taxes), but they should still wind up ahead compared to before. Worst case, each additional dollar of grant income for non-eligible expenses past $8,200 would still net them 90 cents after Federal taxes.</p>

<p>
[quote]
I am sure many low-income families that are depending on getting money for college have no idea that they will have a tax liability for the "non tuition" part.

[/quote]
</p>

<p>Indeed--I think you are right on this point. Financial aid officers ought to make this clear for students, so they can budget for the expected tax liability.</p>

27

<p>Is it possible for a freshman student on a full-ride scholarship claim moving expenses against his/her Room&Board income?</p>

<p>The logic here that a student had to move to college to receive Room&Board income.</p>

28

<p>A student with FA gets a form from the school which states the amount of FA, and the allowable tuition, fees, etc. for tax purposes. I claimed D as dependent, received Hope for the difference, and am getting a refund. D is paying a very small amount. (Well, I am, since I got the big refund.)</p>

29

<p>Please note that the IRS reporting for the first year might be misleading, if tuition expenses is reported for a full year (billing in December) but financial aid disbursed in January. This may underreport a student taxable income in the freshman year and overreport in the sophomore year. </p>

<p>Also, the tax form sent by the schools may or may not include the amount spent on books, since this amount varies from the COA estimate. Using the numbers straight from the 1098 may cause to lose a valid deduction.</p>

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<p>wisteria and xiggi - Thank you very much for your input here. It has helped me tremendously as i'm wiggling through my taxes this year.</p>

<p>fwiw, my s took courses at a college last summer and can now qualify the tuitions for a tuition deduction...and understand why. </p>

<p>s</p>

31

<p>
[quote]
Please note that the IRS reporting for the first year might be misleading, if tuition expenses is reported for a full year (billing in December) but financial aid disbursed in January. This may underreport a student taxable income in the freshman year and overreport in the sophomore year.</p>

<p>Also, the tax form sent by the schools may or may not include the amount spent on books, since this amount varies from the COA estimate. Using the numbers straight from the 1098 may cause to lose a valid deduction

[/quote]
</p>

<p>To reinforce what xiggi said, the 1098-T form can be quite misleading--and not just in the first year. Students may get a variety of different sources of grant funding over their college careers (from various state tuition assistance programs, outside scholarships, Federal Pell grants and SEOGs, etc.) and depending on the vicissitudes of bureaucrats at the agencies that issue the checks, the payments may be credited to the students' at varying times throughout the year, not necessarily consistently from year to year.</p>

<p>There are many problems with the 1098-T tuition statements, in part because the instructions to colleges are quite confusing and the officials responsible for filling out the forms are often confused themselves. Families should really keep records of their actual payments (paid bills stamped with date of payment, copies of promissory notes showing date of signing, and cancelled checks) in order to prepare their taxes accurately.</p>

<p>If there is a significant difference between the amounts reported on the 1098-T and the actual net payments for eligible tuition expenses in a given tax year, it's best to attach a statement to your tax return explaining the discrepancy. The definitive evidence to back up your tuition tax credits is not the 1098-T, but your actual records of payments. Keep your dated recipts for tuition bills, cancelled checks, copies of promissory notes, etc.</p>

<p>Here's a helpful article in a CPA journal explaining some of the possible issues that can arise, Navigating the Form 1098-T Tuition Statement: Inconsistencies in reports</p>

<p><a href="http://www.nysscpa.org/cpajournal/2005/905/essentials/p54.htm%5B/url%5D"&gt;http://www.nysscpa.org/cpajournal/2005/905/essentials/p54.htm&lt;/a&gt;&lt;/p>