How is being a full time student with a pell grant going to affect my taxes?

Question

I've never been full time, or managed a pell grant before this fall. What is that going to change for my taxes?

It says that any leftover funds not charged to school account will be sent as a check... I would keep that? Are there any rules or guidelines on what I use those extra funds for?

Answer 1

This is an excellent question, JB.

Grants and scholarships can be tax-free or they can be treated as taxable income. It all depends what you do with them.

If you use your Pell grant to pay for tuition, books or college fees - the funds are not counted as taxable income and you do not need to report them.

If you use the Pell grant to pay for equipment for school - the funds are not counted as taxable income SO LONG AS all students in your program are required to purchase that equipment.

For example, if you decide to buy a microscope for your microbiology course, so you can use it to do your homework - then that's not a qualified educational expense, unless all of the students in your course are required to buy microscopes.

If you use the Pell grant to pay for your dorm or apartment rent, and if you use the Pell grant to pay for food, whether at the grocery store, at restaurants, or as part of your meal plan - all of those funds are counted as taxable income and you MUST report them on your tax return.

If you use part of your grant for "qualified educational expenses" and part of your grant for "non-qualified expenses", you must report the money spent on non-qualified expenses as income.

I've attached the IRS document that explains these rules. Be careful about how you treat grants and scholarships, because the grant providers and scholarship awarders DO report these funds to the IRS on their own tax filings.

I hope that helps - good luck to you!

Answer 2

It will not effect your taxes, you can decide if you want to report the grants or not. The left over money is to be used for books, gas and living expenses. So enjoy being a student!