Understanding the Tax Implications of College Financial Aid

ARTICLE | October 29, 2024

Authored by Vasquez + Company

Navigating college financial aid can be complex, especially regarding its tax implications. This article, "Certain College Financial Aid Payments May Result in Taxes," outlines the distinctions between gift aid (often tax-free) and compensation for work (taxable). It emphasizes that financial aid's tax treatment depends on its economic nature rather than its name. Key points include how to determine domicile, the impact of free money versus paid work, and strategies to minimize tax liability. Understanding these nuances can help families better manage their education expenses.

Key Points:

• Gift Aid vs. Work Compensation: Free scholarships and grants are generally tax-free, while work-study payments are taxable income.
• Qualified Expenses: Only certain expenses qualify for tax-free treatment, so understanding this can affect taxable income.
• Tax Credits and Deductions: Students may reduce their taxable income through the standard deduction or tax credits, mitigating their tax burden.

For further details, read the full article here.

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