Is Your Federal Pell Grant Tax Free?

3 Ways My Scholarship or Federal Pell Grant is Tax Free

Apply for the federal pell grantIf you’re entering college and have just been awarded a scholarship or perhaps a federal Pell grant, congratulations are in order. This will certainly help to defray the high cost of college and its great news. However, you need to find out if any part of it is classified as income. If so, it must be reported on your tax return. There are various criteria that will tell you if the federal Pell grant or scholarship is taxable income.

When is a federal Pell Grant or a scholarship tax free?

    • You are registered as a full time or a part time student pursuing a degree at an accredited primary or secondary or a post-secondary institution.

  • Your award is for tuition and also fees to enroll or to attend an institution of education
  • Your award is for books, fees, equipment and supplies that are required for the courses you are enrolled in.

As long as you use your scholarship or federal Pell grant as stipulated in the three requirements listed above, it is considered tax free.

When is my scholarship or federal Pell grant taxable income?

  • If it covers any travel expenses
  • If it covers room and board
  • If it covers research expenses
  • If it covers expenses for clerical help
  • If it covers books, any fees, equipment and supplies that aren’t required for your enrolled courses

Sometimes, an award will cover your room and board and tuition. If this is the case, the amount used for your tuition is tax free. The amount for the room and board is taxable income and must be reported on your tax return. You need to be aware that if an adjustment is made for that, you may be required to adjust some other areas of your tax return as well.

As an example, if you’re using a deduction for education expenses on some other section of your tax return, you’ll need to reduce that amount by the portion of your award that is tax free.

In general, any scholarship or federal Pell grant money that is for the courses you enrolled in are tax free.

Where do I report any taxable scholarships or federal Pell grant on my tax return?

The IRS has made it easier to report the taxable portion of these educational awards. There are only five forms in total as follows:

  • Form 1040
  • Form 1040A
  • Form 1040EZ
  • Form 1040 NR
  • Form 1040NR-EZ

For those whose only income for the year is tax free scholarship or federal Pell grant money, you’re not required to file a tax return at all.  However, if some part of it is taxable, then you must file and report it. To help, there are worksheets on the IRS website. You can access the worksheets  here

After you determine any taxable amounts, they need to be reported on the line for wages on page 1 of your tax return. If the amount of the taxable scholarship or federal Pell grant award was not included on your W-2 form, then the taxable amount must be reported as wages and “SCH” entered to the left on the wages line.

An important thing to remember is even if the taxable portion of your scholarship or federal Pell grant isn’t shown on your Form W-2, you must report it.

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