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Ask A CPA: What Tax Forms are for Student Loans & Grants?

Posted by Tony Deutsch on Tue, May 21, 2019

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Male graduated holding money - Education costs conceptsConcannon Miller Shareholder Tony Deutsch recently responded to an Ask a CPA submission from the Pennsylvania Institute of Certified Public Accountants. Check out the question and his response below.

Question: I am trying to get caught up by filing back taxes for the past four years. During that time, the only income I had was from student grants and loans (no scholarships). I have 1098-T forms for each of those years, but nothing else. What tax forms should I use, and how do I fill them out?

Answer: The IRS has a tool on its website to help a taxpayer determine if any of their education grant is included in their income. 

A scholarship is generally an amount paid or allowed to a student at an educational institution for the purpose of study. A fellowship grant is generally an amount paid or allowed to an individual for the purpose of study or research. Other types of grants include need-based grants (such as Pell Grants) and Fulbright grants.

If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax free. They are tax free if you meet the following conditions.

You're a candidate for a degree at an educational institution that maintains a regular faculty and curriculum, and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and the amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution. The tuition paid would be reported on IRS Form 1098-T.

READ MORE: Educational Tax Credits in Time for Back to College

You must include in gross income any amounts used for incidental expenses, such as room and board, travel, and optional equipment. Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant.

However, you don't need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, or a comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college.

Generally, you report any portion of a scholarship, a fellowship grant, or other grant that must be included in gross income as follows: If filing Form 1040, include the taxable portion in the total amount reported on the "Wages, salaries, tips" line of your tax return. If the taxable amount wasn't reported on Form W-2, enter "SCH" along with the taxable amount in the space to the left of the "Wages, salaries, tips" line.

Amounts received from student loans are not considered taxable income. The interest expense paid on the student loans may be deductible.

Check out more Ask a CPA questions and answers here.

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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