report fafsa on federal tax return

How to Report FAFSA College Money on a Federal Tax Return

Updated for Tax Year 2020 / May 4, 2021 04:27 AM


OVERVIEW

Each monetary award you obtain from the federal authorities can have separate and distinctive tax penalties on your federal tax return.


If you are like most students, chances are high you want some monetary assist to finance your faculty training. The federal authorities offers varied sorts of monetary help to students in the event that they file a Free Application for Federal Student Aid (FAFSA). Each kind of monetary award you obtain has separate and distinctive tax penalties which can be handled in another way in your federal tax return.

report fafsa on federal tax return

Step 1: Exclude your Pell grant from taxable earnings

If you might be awarded a Pell grant, you received’t embrace the grant quantity in your federal taxable earnings except you employ the funds for unapproved functions.

Generally, for the Pell grant to retain its tax-free standing, you should be a level candidate on the faculty and solely use the funds to pay for tuition, charges, books, provides and gear. However, if you happen to use the funds to pay your room and board and even school-related journey bills, then you need to embrace the portion of the grant you employ to pay these bills in taxable earnings.

Step 2: Include your earnings from a work-study award in your tax return

Many students are supplied part-time jobs working at their faculty as a part of their FAFSA award. Although this cash you earn is meant to ease the monetary burden of attending faculty, the earnings is absolutely taxable in your tax return identical to another employment earnings.

When you put together your tax return, you need to embrace these quantities on the suitable line for wages and wage.

Step 3: Exclude from taxable earnings any authorities student loans

When you’re taking out a student loan, similar to a Stafford loan, you must pay the complete quantity again with curiosity. Therefore, although your FAFSA lists these loans as a part of your “award,” it’s by no means handled as taxable earnings. However, whenever you start repaying these loans, you could qualify for a student loan curiosity deduction in case your earnings is just not too excessive and you employ the funds just for school-related bills whereas in faculty.

Step 4: Evaluate any state monetary awards you obtain

Many states provide extra monetary help to students who submit a FAFSA. Any award you obtain from the state is topic to the identical federal earnings tax therapy as awards from the federal authorities. For instance, if you happen to obtain a grant out of your state that you just don’t repay, you deal with it identical to a Pell grant, which requires you to make use of the funds a sure means. All state-sponsored student loans are excluded out of your taxable earnings as effectively.

Tips

The tax therapy of your FAFSA awards is similar even if you happen to withdraw from the school at a later date, supplied you initially use the funds to pay faculty bills.

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