How does pell grant affect tax return

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Not all of these expenses are considered approved educational expenses by the IRS, though. Pell Grant funds can also be used to pay for additional college expenses, such as room and board, living expenses, transportation, and other miscellaneous personal expenses.

If you use Pell Grant funds to pay for these things, you will need to claim this portion of the money on your tax return. They are not considered approved educational expenses by the IRS and are therefore not tax-free. When you are filing your taxes each tax year, you will need to pay attention to how you have used your federal financial aid, as well as other forms of financial aid, to pay for your expenses. It is helpful to keep detailed documentation on how and where the funds were allocated for your tax forms and tax preparation.

Pay close attention to the different types of financial aid you receive and how you use it. This goes for state, institutional, and private student aid, as well. The IRS provides a tool you can use to determine what you will need to claim on your taxes, what is tax-deductible, and what funds need to be filed.

The following guidelines can also help:. There are advocates for claiming all of your Pell Grant as taxable income if it does not raise your income bracket too high.

You can then claim the educational credit as a deduction to get the amount refunded. If you consider this route, be sure to consult a professional to see if it can work for you. According to IRS Publication , first, you must be enrolled in a degree-seeking program or one that prepares you for a specific trade upon graduation. Second, you must use the Pell grant for qualified expenses. Paying non-qualified expenses with your Pell grant makes it taxable income, according to the IRS. Qualified expenses for scholarships include your tuition plus any mandatory fees, supplies, books or equipment required for your courses.

If you do have to include any portion of your Pell grant as taxable income, where it gets reported depends on what tax form you're using to file your return. On Form EZ it gets included with your other wages on line 1. On Form A or Form it gets included on line 7.