Did you get a scholarship or grant this past year? Did you receive a refund deposited to your bank account after all tuition and fees were paid?
If you answered yes to both of those questions, then you should keep reading. Actually, you should keep reading regardless because this is good knowledge to have about taxes, scholarships and grants, and reporting it to the IRS. I did not find out I had to pay taxes on scholarships and grants until after April 15 last year. I had to pay a late penalty on the federal and state level last year so this is a way for me to help students to make sure it does not happen to them.
So let’s say you received a $3,000 refund (for two semesters), but $1,000 of that is a loan, then at this point, you should only be considering $2,000 as taxable. Next, throughout the year you should keep track of “qualified education expenses.”
This includes items required of students for the course:
- Course-related expenses
Say you used $500 on books and supplies, then your taxable amount is $1,500 ($2000-$500).
This does not include:
- Room and Board
- Clerical Help
- Equipment not required for course
That is right, room and board is taxable! So if you paid $5,000 of your room and board through scholarships and grants, now your taxable amount is $6,500. This must be reported on your individual tax return as income. A good document to look at is the 1098-T provided on my.uic.edu to every student. Remember you have to do this on the federal and state level.
I took most of the above information from the following IRS website. I suggest you go through it if you are unaware of tax laws and start working on Worksheet 1-1. http://www.irs.gov/publications/p970/ch01.html#en_US_2013_publink1000177991
How do I feel about this? I think student debt is a huge problem in this country, and taxing students on scholarships and grants is absolutely atrocious, and it is not helping the problem. This whole tax on scholarship and taxes should be wiped out. But, that is only my opinion. I would love to hear your questions and opinions.
Also, sorry if I am telling you this too late because the April 15 deadline has already passed.