My daughter has been awarded Work-Study and has also been notified of an outside scholarship. If she takes the scholarship (non-tuition/books/fees) it will replace part or all of her WS. She cannot be awarded both.
Are these both taxed at the same rate?
What are the financial benefits? liabilities?
The scholarship will be available as soon as the school posts it, some schools split it up between the two semesters.
The work study money is not available up front. She would need to apply for a job first and then get a regular paycheck for the hours worked (weekly/biweekly).
Federal work study money is subject to federal tax withholding, but no FICA tax. It also does not count towards student income on the FAFSA.
The scholarship probably would be taxable income to the student if it’s used for nonqualified education expenses (everything other than tuition, fees, books). But if tax is actually due would depend on other taxable income of the student.
It might be nice if the student doesn’t need to work in the first semester/year.
The taxable amount of the scholarship might be considered unearned income subject to the kiddie tax. You would need to verify if that’s is the case. Does she earn enough to be required to file an tax return?
WS in not gauranteed. Only the elgibility to apply and earn the WS is gauranteed. It is possible that she would not be able to earn her full amount.
Your question seems most appropriate for the school to answer. Surely your daughter is not unique to receive both. You daughter will not be disadvantaged by working on campus because they often involve necessary activities that waste professional time. She may even find a job that fits her interests and has a routine place to make friendships and contacts.
After the external scholarship is reported to the school, they will update the FA package. You will see if the WS is reduced or removed. My D’s FA package got 5 revisions through out the summer before the first semester in Freshmen year. Scholarships not using on qualified education expenses are taxable income. WS is like taxable scholarship.
I would say she’s better using scholarship. Both WS and scholarship are taxable but she will get scholarship right away. I also think that it’s better to focus completely on studying during first year at school.
Better to take the scholarship. If she still wants a job, she can get a ‘regular’ job. Yes, she will have FICA taken from it but so does everyone who works a regular job. Take the scholarship.
My D has an on campus job, not federal work study eligible, and no FICA tax is withheld.
She has federal, state and local taxes withheld from her work income. She gets most of the federal tax back as a refund. She paid about $100 for kiddie tax on her taxable scholarships, because with work income included, it exceeded the standard deduction of $6,300.
But we can claim AOTC on books and fees, so it more than makes up for it.
The main advantage of federal work study income, is that it does not count against student income for FAFSA. Whether that matters or not, depends on if total income from work is over $6,420 or so, where student income might start impacting EFC.
Taxable scholarships are also removed from student income on FAFSA, at least the amount that was reported as part of AGI on student tax return.