Financial Aid

The Basics:

  • When applying for financial aid, you may need to provide a copy of your tax return.
  • See if you qualify to claim the American Opportunity Credit or Lifetime Learning Credit.
  • Out-of-state students: You generally file a state tax return only for your home state unless you earn an income in the state you attend college.

Financial Aid

When applying for financial aid, you may be asked to provide a copy of your federal income tax return. If you previously filed Form 1040 (1040, 1040A or 1040EZ), then you may use Form 4506 to request the IRS send a copy of your tax return to a third party. If you’re asked only for IRS verification of your income, you can use Form 4506-T or Form 4506T-EZ to request the IRS to send a copy of that information to the third party.

Scholarships: Scholarships include amounts paid because of academic, athletic, musical or other abilities. For degree candidates, only the portion of a scholarship used to pay for amounts other than tuition and required fees is taxable. Required fees are items that are required for all students in a particular program. Scholarship amounts used for room and board, travel, research, clerical help and equipment are taxable.

Grants: Pell Grants, Supplemental Educational Opportunity Grants and Grants to States for State Student Incentives are treated like scholarships and are tax-free to the extent they are used to pay for qualifying expenses. Money from these sources used for travel to and from school is taxable. Payments received for education, training or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax-free.

Fulbright Grants: These grants may be awarded for study, research or teaching abroad. They are generally treated as any other scholarships in figuring how much of the grant is tax-free. For example, if a taxpayer receives a Fulbright Grant for lecturing or teaching, it’s payment for services and is taxable.

How to Report Financial Aid on a Tax Return

Don’t report nontaxable scholarship amounts on your tax return. Taxable amounts are included with wages, even if the scholarship amounts aren’t shown on a W-2 form.

Form 1040EZ: Include on line 1, Form 1040EZ, the taxable amount not reported on Form W-2. Print “SCH” and the amount not reported in the space to the left of line 1.

Form 1040 or 1040A: Include on line 7, Form 1040 or 1040A, the taxable amount not reported on Form W-2. Print “SCH” and the amount not reported on the dotted line next to line 7 on Form 1040 or in the space to the left of line 7 on Form 1040A.

Higher Education Credits

The government provides you with 3 types of credits while you’re attending a higher-learning institution:

The American Opportunity Credit is allowed for the first 4 years of college. The student must be enrolled in at least half of a full-time load in a degree seeking program.

The Lifetime Learning Credit can be claimed for any number of years. The number of hours the student is enrolled in and whether the student is enrolled in a degree program are not factors. This credit applies to the family as a whole, not on a per student basis.

To see if a student’s expenses qualify for any of these credits, call us at Flightax!

State Taxes

Going to school in a different state from your home state isn’t considered a permanent address change. If you’re attending college out-of-state, you’ll still file taxes for your home state. However, if you earn income in the state you’re attending college, or if you are considered to be a statutory resident of the state in which you’re attending college, you’ll file a return in both states.

We will be more than happy to help you complete your forms! 

See IRS Publication 1577