So, I have a pretty substantial financial aid package which covers all my $75000 COA. However, I have to pay taxes on about $20,000 because that money goes towards expenses that aren’t required for enrollment (room and board, meals, living expenses etc…).
Since all the money I get from school goes directly to school related expenses, am I expected to take out a loan or something to pay the taxes. How can I be taxed on money that I don’t have?
Do you have a job? If your parents can’t help you pay then your only other option is to work and raise the money on your own.
If your total income is $20k, have you figured out the actual taxes due? It might be zero. (I am not a tax advisor). But don’t immediately panic.
You figure out how much tuition, fees and books are for 2018. Those are qualified education expenses (QEE) and scholarships and grants that cover those are tax free.
The rest of your scholarships and grants that you received in 2018 and which cover non QEE, are taxable.
The standard deduction in 2018 goes up to $12,000.
So you might owe taxes if taxable scholarships for 2018 exceed that number.
I would recommend that you get a job and try and work during Christmas break, and maybe on campus in the spring.
You won’t be paying taxes on the full $70,000 or so. Tuition, fees, and books can be subtracted. Really…you would,be paying taxes on the amount that is for expenses that are NOT qualified educational expenses…room, board, personal expenses.
That total cost for room board personal expenses is likely in the $20,000 range. I doubt the taxes on that will be $20,000.
And yes…get a job.
Yes, the IRS expects you to pay even if you don’t have the money.
A job would help, or if you are getting $75k in scholarships, you must be getting some of that refunded to you for incidentals. My kids never came close to the COA their kids said they should be paying. My daughter did take the subsidized part of the loans and used some of that to pay her taxes. She saved a lot of the loan money and used it to help with expenses when she graduated - a down payment for a car, apt fees and deposits, etc.
donnaleighg, so this was for the 2017 taxes and my taxes came out to about $3200
I work an unpaid internship bc its in the field that I want to work in later, but I guess I should leave that and get a paid position 
If I get a job, wouldn’t that mean more income and therefore increased taxes, or would the taxes not increase by that much?
There is a change in the standard deduction for 2018 taxes…maybe working to your advantage.
@BelknapPoint ?
For this tax year (2018), the standard deduction for a taxpayer who files as single and who is claimed as a dependent on someone else’s tax return is the smaller of either:
-Earned income (this includes taxable scholarships) plus $350 if earned income is more than $700,
-$1,050 if earned income (including taxable scholarships) is not more than $700,
or
-$12,000
@BelknapPoint checking for clarity…
So the standard deduction could be a lot lower than $12,000?
Hmmm…than the student would need to work with their parent. If the parent gets a tax credit, perhaps that money could be used to help the student pay any owed taxes.
OR…maybe it’s more beneficial for no one else to claim this student as a dependent so that the $12,000 SD applies?
Would that be correct?
Sure, but in many instances, even a standard deduction of considerably less than $12,000 will still eliminate any tax liability. For instance, if a single taxpayer who is claimed as a dependent on someone else’s tax return has $7,000 in earned income (and this could include taxable scholarships) and $200 in interest income, the standard deduction would be $7,350, so there would be no taxable income and no tax owed.
So did you pay the $3200 in 2017 taxes?
@Madison85 I paid about $1200 because I had some money leftover from my aid, my mom and sister were kind enough to each give me $1000. I’m just trying to figure out how I can save more during the school year so they don’t have to that again
Did you take out the federal subsidized and/or unsubsidized loan?
@Madison85 nope, my school meets all needed aid with grants/work study. I’m a gates scholar so my work study is covered, which is why I took an unpaid internship
You won’t be able to take out a student loan if your aid already meets the full COA with a 0 EFC
No the taxes would not increase by that much.
As you’ve mentioned, you were able to pay 1200 from your leftover aid. Try to be more frugal so you’ll have more to put towards your taxes. Get a paid internship and save some of that money to put towards your taxes.
Frankly, I think it’s crazy to tax scholarships, but that’s the way it is.
@kelsmom can this student take out an unsubsidized Direct Loan even though the full cost of attendance is met with other aid?
I thought that was possible…after all, many folks ere suggest community college kids with a Pell that covers full costs…take the Direct Loan and save it for future years.
No, the total of all aid (need based and non need based) cannot exceed COA.
I am not a fan of saying no to Pell to save it for later, by the way. Pell covers six full years of full time coursework, so it’s not like it won’t be there for future years. And … what if the student doesn’t qualify in future years? He/she has left free money on the table. And I won’t even get into the future cost of that accumulating interest … or the fact that the dependent undergrad aggregate loan limit is $31,000.
If you had $20,000 in taxable scholarships then the net unearned income that would be taxed should be $8,000 (after $12,000 standard deduction).
According to the new 2018 form 8615 instructions, I think the tax would be $255 plus 24% of amount over $2,550.
So about $1,500.
https://www.irs.gov/pub/irs-prior/i8615–2018.pdf
Would you agree, @BelknapPoint ?