My son won three awards/scholarships this year. He’s a senior in high school. It’s not clear to me which of these awards need to be reported to his college.
a) $2,000/yr award from my work. They requested info on his college and any financial aid awarded to determine the amount. Not sure how they make payments, but I believe to the student.
b) High school has various awards. He won one such award for a one time award of $500. I needed to submit proof of college (ie., the deposit). Payment made via check to student.
c) He won a music award for around $500 given to high school seniors from a local music shop. No mention of college anywhere. Payment made via check to student.
The way it worked for us was my D got three scholarships, one sent directly to the college, one was sent to her but made out to the college and one sent to her made out to her.
We paid the two checks that were sent to her to her school’s bursar when we were there for orientation and they applied them to her student account.
Since she already had a full tuition scholarship, and we opted to claim fees and books as expenses for AOTC, she reported the scholarships as taxable income on her tax return.
Scholarships and grants that cover tuition, books and fees are not taxable.
She reported the amount of taxable scholarships she reported as part of AGI on her FAFSA.
Since your son is not attending school this year, the deferred scholarship should not factor in until next year.
The $500 scholarship that covers the deposit, not sure if that is a qualified education expense.
c) Music award (let me call it for $550 to differentiate it) - Since not specifically for education and awarded this year when there are not going to be any more qualifying expenses (everything used up by $500 in (b)), this is taxable income for 2016 and eventually will make it onto to the FAFSA as such. Assuming he does not have alot of taxable income (probably under $1,000), I don’t believe there will be any taxes or financial aid ramifications since I don’t believe he will owe any taxes and under CSS Profile limit (under $4,473).
I have also read about other receiving tax forms (1099s). I guess I’ll what forms, if any, come next year.
Once your son attends college he might receive a 1098 E form which shows tuition and fees paid and scholarships received for the year.
Outside scholarships might not be listed on this form.
The ones my D got were listed, I think because they were all paid to the school, either by the scholarship awarding entity or us. But not sure if a school has to list them.
The form can help determine if you have qualified education expenses (QEE) to claim the American Opportunity tax credit (AOTC), or if you have taxable scholarships to report.
The FAFSA doesn’t penalize for taxable scholarships. If student has included taxable scholarship amounts in the AGI on tax return, there is a question that asks for that.
Since you don’t really seem to have qualified expenses to offset the two scholarships this year, I would probably just report them on the 2016 tax return, if there is not much other income it should not result in tax due. Then on the 2018/19 FAFSA you can indicate the amount of 2016 AGI that was from taxable scholarships.
The 2017 tax return info will be used for FAFSA 2019/20
Hi, my son received a $500 scholarship check payable to him. The donor did that specifically so it does not affect his financial aid package. If my son signs it over to the college, it will affect financial aid for sure. If we give it to school, we go against the donor’s wishes. If we don’t tell the school about it, we go against school policy. Does anyone know what the correct thing to do is? Thanks…
It’s not so much a school policy as a federal regulation on how they handle financial aid. If the school awards all the federal money based on need, and you actually need $500 less, well they’ve over-awarded you. The donor doesn’t get to set the rules. $500 shouldn’t matter unless you have been award EXACTLY the COA of the school all in need based aid. Most schools require some family contribution, or allow some extra amounts for travel or buying a computer or other supplies.
It’s up to you whether to report it or not. The schools require you must report it.
Thank you for your replies. As background info, he is not getting full COA. Parents portion - 30k, student portion - 4k. Son has enough outside scholarship money “payable” to school to cover 4k plus computer, etc. Scholarship vs gift is a good question. The donor assumes the award/gift? will be used for educational expenses, of course, but does not relate it specifically to a college. Donor never asked for acceptance letter, etc. The other option is to give the money back to donor, I guess.
If the school requires you to report it, then report it.
If you don’t want to pay it to the school towards tuition/fees then cash it and buy books with it.
Scholarships paying for tuition, fees, books are not taxable.
Hate to bring up an old thread, but I have an update. My child received 3 types of scholarships (from my employer no money received in 2016, a high school $500 award and a music award) in 2016. I did not report any of them in 2016 to the school as he took a gap year and did not attend the college. In looking at the tax forms for 2016, I do see where I need to report any money received as income for 2016 (the first scholarship, where no money was received in 2016 would not be included). My son does not have alot of other income (about $1K), so he won’t owe any taxes.
Some comments/questions:
Since he will not owe any taxes for 2016 if all the scholarships are considered taxable income , I don’t think it matters if I try to claim some of the scholarship as qualified (we did pay a $400 tuition deposit in 2016 and did have college course expenses on his gap year). But it does have me thinking about future financial aid. Does it matter whether his income for 2016 is $1K or $2K (if you include the scholarships) as far as future aid is concerned?
Others above mentioned that eventually (academic year 2018-2019) colleges will see the scholarships because it’s included as income for 2016. Of course, that is true. But I believe it is also reported on the CSS Profile for the academic year 2017-2018. Question SD-110A asks “Enter the total amount of your scholarships, grants, and gift aid for the 2016-17 academic year.” I believe I would need to report the two scholarships for which he received money in 2016 in this question. Agree? Anyone know how this money factors into financial aid for academic year 2017-2018?
Thanks and sorry again for reopening an old thread.
@privateID You need to read IRS Publication 970 https://www.irs.gov/publications/p970/ to make sure you know what expenses you can claim an education credit for.
Usually QEE is tuition, qualified fees, books.
It might also matter how many credits he took and if he was a degree seeking student.
Did any of the scholarships limit what they could be used for?
AOTC is limited to 4 years so you might want to wait until you have more expenses to claim, you might be able to claim one of the other education credits for the community college course fees.
Did he receive any need based aid at the community college? Or federal/state aid?
As far as when he attends college this year, the employer will probably send the scholarship directly to the school, but any scholarships he is awarded this year that are not from the school directly, should be reported to them.
From what I understand, it is not so much a matter of “income” (although for the IRS it is, and if the scholarship is taxable and requires a tax return be filed, you should do so), but of “need”.
If a student has outside scholarships, it reduces his need, so he might not qualify for as much federal, state, institutional aid. But you are required to report these scholarships to make sure you don’t get awarded need based aid you’re not entitled to.
As far as the scholarship income and work income showing up on the FAFSA, any taxable scholarship income reported on tax return as part of AGI can be subtracted from total student income by listing that amount in question 44d.
But a student can make $6,420 in work income, because that is what the income protection amount is for a dependent student on 17/18 FAFSA (plus there would be deductions for any federal, state and soc sec taxes paid).
^ The high school and music awards had no conditions and both said they were sure I can find some use for it in 2016 when I asked about deferring.
I have been reading Pub 970. His gap year was overseas, so it complicates matters further. He got no aid overseas. From what I read, it’s a bit ambiguous whether the $400 mandatory school deposit can be used for the scholarship. I have no plans to claim the scholarship for the overseas program. My question above is does it matter if it’s qualified or not if he won’t need to pay taxes for it either way?
I don’t plan to use AOTC for 2016. I believe my employer actually sends my son a check, but of course he will need to report that to the school.
I don’t think the $400 deposit will be a qualifying education expense. It is not a condition of attendance, he did not attend this school.
I would simply report the total of the two scholarships as taxable income on his 2016 tax return.
Together with the income of $1k he should not owe any tax.
Then on the 2018/19 FAFSA you would use the DRT to bring over the AGI, income from working from his tax return and put in question 44d the amount of taxable scholarship he included in 2016 AGI, $1,000.
So the only income the FAFSA would count would be his $1,000 other income.
I think @privateID was talking about reducing the $1,000 in scholarships received in 2016 by the $400 tuition
deposit paid in 2016 (or to claim an education credit for that amount?)
The question was if the tuition deposit is QEE, hence qualified.
I’m not sure. Tax-free scholarships don’t have to be listed in income on FAFSA (I never filled out CSS profile).
But if he didn’t attend school and didn’t have any qualified education expenses, I would probably list the $1,000 from scholarships and $1,000 from work income as student income for FAFSA. Because if the scholarships were spent on non-qualified expenses, then they would be taxable.
If the student doesn’t file a return, the college will most likely require the “verification of non-filing letter” from the IRS.
So it might be easier to file a tax return, even if it he is not required to, or owes any tax.
Then on next year’s FAFSA you can use DRT to import his 2016 AGI of $2,000 and report $1,000 of taxable scholarships included in AGI in question 44d. It will then be subtracted from his total income.
@kelsmom, is a “verification of non-filing letter” required of every student who didn’t file a tax return?