Are Kentucky Grants Taxable?
Kentucky's tax treatment of income received from a grant varies according to the tax status of the grant recipient, i.e., age and marital status. Total income earned, as well as the source of the funds received, the purpose of the grant, and what the money is used for are also variables that affect Kentucky tax liabilities. According the Kentucky Department of Revenue, for the most part, Kentucky's tax laws follow federal guidelines.
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Kentucky Tax Status
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Whether or not Kentuckians file state income taxes depends on income and family size. Kentucky income limits vary according to the age and marital status of the taxpayer. Nonresidents file Kentucky income taxes if income is earned from Kentucky sources. In order to claim a refund, regardless of income or residency status, you must file a state income tax return. Whether the taxpayer reports grant money received as taxable income depends on the source of the grant and how it was spent.
Taxable Income
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Unless the state of Kentucky has a specific law to the contrary, the revenue department closely adheres to federal tax regulations in reference to tax treatment of reported state income. Such is the case for grants and fellowship monies. Kentucky requires taxpayers to use the adjusted gross income reported on federal returns as the starting point in determining Kentucky adjusted gross income. State income taxpayers then use Schedule M to add and subtract from the reported amount to figure taxable income. If a grant is taxable under federal law, the amount is simply transferred in the income total to the Kentucky return. If a grant is nontaxable on federal income tax returns, the same holds true for Kentucky taxes.
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Educational Grants
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According to IRS Publication 970 "Tax Benefits for Education," as a general rule if a grant for educational purposes is taxable or not depends on what it is used for and whether or not the recipient is a degree candidate. Degree candidates should consider grants received for room and board, research, clerical help and travel as taxable income. In addition, grant money used to pay expenses that are not necessary at the educational institution should be considered taxable income. However, funds used to pay for mandatory expenses such as tuition, books, and course fees are not taxable income.
Disaster Relief Grants
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Grants received from federal relief agencies per the Disaster Relief and Emergency Assistance Act are not taxable income in ordinary circumstances. Generally, this type of grant goes to pay for housing and personal expenses following a disaster. However, should the taxpayer be reimbursed from another source, such as an insurance company for expenses initially paid for with grant money, then the reimbursement or the grant should be reported as taxable income.
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