Can Federal Pell Grants Be Taxed?
A Pell Grant can be a lifesaver when it comes to paying for your college tuition, books, fees and other expenses. However, because a Pell Grant is gift money that you don’t have to pay back, you may be concerned about your grant’s effect on your taxes. As long as you are in school and using your Pell Grant for approved education-related expenses, it is not considered taxable income.
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Definition
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Federal Pell Grants are the government’s main form of need-based financial aid for college students. The government may award them in one of two ways. It may award the money directly to the school, which will apply it to the cost of education and cut you a check for the remainder. It may also pay you the grant directly, making you responsible for applying it to tuition, fees and books.
Filing Necessity
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If your only income is from non-taxable student grants and scholarships (like the Pell Grant), you don’t need to file a tax return. However, if you receive taxable financial aid in addition to your Pell Grant, or if you earn an income from working, you must file a return.
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Taxable Financial Aid
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You must be a candidate for a degree (undergraduate or graduate) in order for your Pell Grant to be nontaxable. If you are no longer a candidate for a degree and you use your Pell Grant for expenses unrelated to school, your Pell Grant becomes taxable. The same is true for other scholarships, grants and fellowships. Additionally, if you are a student but you receive grants unrelated to education, this money is taxable as part of your income.
Other Tax Considerations for Students
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In addition to certain scholarships and grants, the government may tax you for other sources of income. If you receive pay for services, such as wages from a job, a work-study program or self-employment, this money is taxable. You will also be taxed for income on investments. When you are ready to file your taxes, if you earned $58,000 or less in the previous tax year you may e-file for free on the IRS website. Otherwise, you may still file online but you must pay a fee.
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References
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