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Is Financial aid Pell Grant considered earned or unearned income ?

wayneluu91wayneluu91 Posts: 30Registered User Junior Member
Hi everyone,

I am new with all these taxes and stuffs, I have no clue. I don't know where to ask this too so I hope you guys will help me with this, although it's a little bit off topic here.
So I have been receiving Pell grant : $5550 and Cal grant: $1500 for 2011-2012. I've also been working under Work Study since the last couple of months of 2011. The school just sent me the W-2 form which says that I only made $662 in the year of 2011, and the Federal Tax Withheld is zero(they did not take any tax from my paychecks) . I did not claim anyone on the W-4 form (the form I filed before starting working). I stated in a form of my school that I am a dependent student. So, do I have to file the tax return for 2011 ?
In the instruction for Form 1040, it says :
"Single dependents. Were you either age 65 or older or blind?
No. You must file a return if any of the following apply.
• Your unearned income was over $950.
• Your earned income was over $5,800.
• Your gross income was more than the larger of—
• $950, or
• Your earned income (up to $5,500) plus $300."

I am confused here. If Pell grant and Cal grant are either considered earned or unearned income, I have to file the tax return. Is that right ? But are they earned/unearned income ?
In case I must file a tax return, which form should I use ?

Thank you guys a lot, I would appreciate any help.
Wayne.
Post edited by wayneluu91 on

Replies to: Is Financial aid Pell Grant considered earned or unearned income ?

  • swimcatsmomswimcatsmom Posts: 14,999Registered User Senior Member
    Educational grants and scholarships are only taxable income to the extent they exceed qualified education costs (basically tuition, required fees, required books and supplies. Not all education expenses are qualified expenses, for instance room and board is not a qualified expense). So if your grants/scholarships were less than your qualified education expenses they are not taxable. If your grants/scholarships were more than your qualified expenses, then the amount that exceeded the expenses is taxable income. For instance if your grants were 6000 and your qualified expenses were $4000, then $2000 is taxable income.

    For this purpose it is treated as earned income. Whether you have to file a return will depend on your total earned income and any unearned income.
  • wayneluu91wayneluu91 Posts: 30Registered User Junior Member
    Thank you so much for spending your time to answer my question. According to my calculating, my educational grants and scholarships are less than the qualified expenses. I understand that the question about tax and decisions whether file or not are very sensitive and hard to answer, but I do not know where to ask. Can you suggest me some reliable sources and have the responsibility to answer whether I must file or not ?
    Thank you.
  • danasdanas Posts: 1,781Registered User Senior Member
    Are you a dependent on someone else's return? If so, you don't file separately.
    It could be your parent or parents could take a federal education tax credit.
  • wayneluu91wayneluu91 Posts: 30Registered User Junior Member
    I stated to the school that I am a dependent student but my parents are not having any job. We live with my aunt but I don't think she claimed us as her dependents.
  • swimcatsmomswimcatsmom Posts: 14,999Registered User Senior Member
    If your grants are less than your qualified educational expenses (tuition/fees/required books/supplies), and your only other income is WS of $400 ish, then it does not sound as if you need to file. If you want to be sure, one thing you could do is use one of the free file links on the IRS website to run your numbers. It won't cost you anything and if you find you do not need to file then you don't have to finish completing the return.

    Free File: Do Your Federal Taxes for Free

    I would suggest choosing the freefile option from one of the well known companies such as turbotax.
  • sk8rmomsk8rmom Posts: 5,746Registered User Senior Member
    Are you a dependent on someone else's return? If so, you don't file separately.

    That is not correct. If you have a filing obligation (see above for limits) then you must file even if you are claimed as a dependent by someone else.
  • danasdanas Posts: 1,781Registered User Senior Member
    Oops, you are right, done it in the family.
  • wayneluu91wayneluu91 Posts: 30Registered User Junior Member
    Well, I just tried to file the TurboTax as Swimcatsmom suggested. Probably it's my ignorance that I did not see any statement about whether I should file or not. However, I found out on that site that if I can be claimed by a taxpayer on their tax return, I only must file the tax return if my income is over $5800, which my income can't ever get to. So I think I do not have to file. I will go to see the personel service at my school to confirm this. Thanks all. If you guys have any more opinion or suggestion, please post.
  • familyof3boysfamilyof3boys Posts: 1,212Registered User Senior Member
    From: http://studentaid.ed.gov/students/attachments/siteresources/2012-13CTF.pdf

    Q. When is student aid considered income?

    A. Generally, grants and scholarships that do not exceed tuition, fees, books, and required supplies are not considered to be taxed or untaxed income. If you have an ROTC scholarship, a private scholarship, or any other kind of grant or scholarship, that grant or scholarship will be considered as an available resource by the financial aid office when packaging aid.
    You should report grants and scholarships you reported on your tax return. You should then report these items as exclusions from income in Question 43(d): Student‘s 2011 Additional Financial Information. These amounts will be treated as exclusions from your income.
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