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Are pell grants excess considered income?

Anonymous
Posted by Anonymous
  • 9 Replies

I got a pell grant. The school paid my books and tuition expenses. Then I got a check from my school from the amount I didnt use. I bought a computer for school. Do I have to report my pell grant to the IRS? I called the IRS and they said pell grants are tax exempt. but I am still scared. Can someone tell me if the the IRS is right? I did get a 1098 form from the school. I also told the IRS this and was told it was income.

Posted by Anonymous on Mar. 25, 2013 at 12:44 AM
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Replies (1-9):
Anonymous
by Anonymous on Mar. 25, 2013 at 12:46 AM
Idk. Bump
kansasmom1978
by on Mar. 25, 2013 at 12:46 AM

No you dont. Pell Grants are tax free.

Mommy2b2many
by on Mar. 25, 2013 at 12:47 AM

I'm pretty sure the IRS would be giving you correct info. Why would you be scared? The school usually send you a tax form that you sent to the tax guy.

Anonymous
by Anonymous on Mar. 25, 2013 at 12:47 AM
If the IRS is right? Well, they are the authority on taxes.

But I think you don't need to be freaking out over this. Did you get a 1098-T from the university? The information from that document should probably suffice for tax forms.
Anonymous
by Anonymous - Original Poster on Mar. 25, 2013 at 12:49 AM

I did get a 1098 T form.


Quoting Anonymous:

If the IRS is right? Well, they are the authority on taxes.

But I think you don't need to be freaking out over this. Did you get a 1098-T from the university? The information from that document should probably suffice for tax forms.



Anonymous
by Anonymous - Original Poster on Mar. 25, 2013 at 12:49 AM

Im worried what if the guy was wrong. I am so scared of the IRS.


Quoting Mommy2b2many:

I'm pretty sure the IRS would be giving you correct info. Why would you be scared? The school usually send you a tax form that you sent to the tax guy.



Sassy762
by CAFE SASSY HBIC on Mar. 25, 2013 at 12:51 AM

1.   Scholarships, Fellowships, Grants, and Tuition Reductions

Reminder

Individual retirement arrangements (IRAs). You can set up and make contributions to an IRA if you receive taxable compensation. Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. For more information about IRAs, see Publication 590.

Introduction

This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Included are discussions of:

  • Scholarships,

  • Fellowships,

  • Need-based education grants, such as a Pell Grant, and

  • Qualified tuition reductions.

Many types of educational assistance are tax free if they meet the requirements discussed here.

Special rules apply to U.S. citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. For information about these rules, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.


Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies.

A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Amount of scholarship or fellowship.   The amount of a scholarship or fellowship includes the following:
  • The value of contributed services and accommodations. This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship.

  • The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research.

  • Any amount received in the nature of a family allowance as a part of a scholarship or fellowship.


Tax-Free Scholarships and Fellowships

A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

A scholarship or fellowship is tax free only to the extent:

  • It does not exceed your expenses;

  • It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and

  • It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. (But for exceptions, see Payment for services,

later.

Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income.

Candidate for a degree.   You are a candidate for a degree if you:
  1. Attend a primary or secondary school or are pursuing a degree at a college or university, or

  2. Attend an educational institution that:

    1. Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and

    2. Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency.


Eligible educational institution.   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.


Qualified education expenses.   For purposes of tax-free scholarships and fellowships, these are expenses for:
  • Tuition and fees required to enroll at or attend an eligible educational institution, and

  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.


Expenses that do not qualify.   Qualified education expenses do not include the cost of:
  • Room and board,

  • Travel,

  • Research,

  • Clerical help, or

  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.


Payment for services.   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. This applies even if all candidates for a degree must perform the services to receive the degree. (See below for exceptions.)


Exceptions.   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under:
  • The National Health Service Corps Scholarship Program, or

  • The Armed Forces Health Professions Scholarship and Financial Assistance Program.


Example 1.

You received a scholarship of $2,500. The scholarship was not received under either of the exceptions mentioned above. As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Of the $2,500 scholarship, $1,000 represents payment for teaching. The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Your qualified education expenses were at least $1,500. Assuming that all other conditions are met, $1,500 of your scholarship is tax free. The $1,000 you received for teaching is taxable.

Example 2.

You are a candidate for a degree at a medical school. You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. The terms of your scholarship require you to perform future services. A substantial penalty applies if you do not comply. The entire amount of your grant is taxable as payment for services in the year it is received.

Athletic Scholarships

An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later.

Worksheet 1-1.    You can use , later, to figure the tax-free and taxable parts of your athletic scholarship.


  

Worksheet 1-1.Taxable Scholarship and Fellowship Income

1.Enter the total amount of any scholarship or fellowship for 2012. See Amount of Scholarship or Fellowship, earlier.1.  
 
  • If you are a degree candidate at an eligible educational institution, go to line 2.

  • If you are not a degree candidate at an eligible educational institution, stop here. The entire amount is taxable. For information on how to report this amount on your tax return, see , later, in this chapter.

   
2.Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.)2.  
3.Subtract line 2 from line 13.  
4.Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses4.  
5.Subtract line 4 from line 35.  
6.Enter the amount of your qualified education expenses6.  
7.Enter the smaller of line 5 or line 6. This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship)  7.  
8.Subtract line 7 from line 58.  
9.Taxable part. Add lines 2, 4, and 8. See , later, for how to report this amount on your tax return9.  



Sassy762
by CAFE SASSY HBIC on Mar. 25, 2013 at 12:51 AM

Taxable Scholarships and Fellowships

If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship.

Reporting Scholarships and Fellowships

Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable.

If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, ask the payer for a corrected one.

For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions.

How To Report

How you report any taxable scholarship or fellowship income depends on which return you file.

Form 1040EZ.   If you file Form 1040EZ, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1.


Form 1040A.   If you file Form 1040A, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7.


Form 1040.   If you file Form 1040, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7.


Schedule SE (Form 1040).   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. If your net earnings are $400 or more, you must pay self-employment tax. Use Schedule SE, Self-Employment Tax, to figure this tax.


Form 1040NR.   If you file Form 1040NR, report the taxable amount on line 12. Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. See the Instructions for Form 1040NR for more information.


Form 1040NR-EZ.   If you file Form 1040NR-EZ, report the taxable amount on line 5. Generally, you must report the amount shown in box 2 of Form(s) 1042-S. See the Instructions for Form 1040NR-EZ for more information.


Other Types of Educational Assistance

The following discussions deal with other common types of educational assistance.

Fulbright Grants

A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free.

Pell Grants and Other Title IV Need-Based Education Grants

These need-based grants are treated as scholarships for purposes of determining their tax treatment. They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded.

Payment to Service Academy Cadets

An appointment to a United States military academy is not a scholarship or fellowship. Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under , applies.

Veterans' Benefits

Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Do not include these payments as income on your federal tax return.

If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. This applies only to the part of your VA payments that is required to be used for education expenses.

You may want to visit the Veteran's Administration website at www.gibill.va.gov for specific information about the various VA benefits for education.

Example.

You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Neither of these benefits is taxable and you do not report them on your tax return. You also want to claim an American opportunity credit on your return. You paid $5,000 in qualified education expenses (see , later). To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. You do not subtract any amount of the BHA because it was paid to you and its use was not restricted.

Qualified Tuition Reduction

If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. This is called a “tuition reduction.” You do not have to include a qualified tuition reduction in your income.

A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. You do not have to use the tuition reduction at the eligible educational institution from which you received it. In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income.

The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education.

You must include in your income any tuition reduction you receive that is payment for your services.

Eligible educational institution.   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.


Officers, owners, and highly compensated employees.   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. The group must be defined under a reasonable classification set up by the employer. The classification must not discriminate in favor of owners, officers, or highly compensated employees.


Payment for services.   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. This applies even if all candidates for a degree must perform the services to receive the degree. (See below for exceptions.)


Exceptions.   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under:
  • The National Health Service Corps Scholarship Program, or

  • The Armed Forces Health Professions Scholarship and Financial Assistance Program.


Education Below the Graduate Level

If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below.

  1. You are an employee of the eligible educational institution.

  2. You were an employee of the eligible educational institution, but you retired or left on disability.

  3. You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability.

  4. You are the dependent child or spouse of an individual described in (1) through (3), above.


Child of deceased parents.   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died.


Child of divorced parents.   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents.


Graduate Education

A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met.

  • It is provided by an eligible educational institution.

  • You are a graduate student who performs teaching or research activities for the educational institution.

You must include in income any other tuition reductions for graduate education that you receive.

How To Report

Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ).

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