The Tax Preparation Blog

Question: Is Financial Aid considered income for taxes in Michigan?

I’m curious if I have to report my financial aid as income on my taxes when filing taxes at the end of the year. I’m 19 and attending Baker College Online and live in Michigan, if that has anything to do with it.

BAKER COLLEGE GRANT 375.00
EST MI COMPETITIVE SCH 1750.00
MICHIGAN PROMISE 1000.00
PELL GRANT 3068.00
TUITION INCENTIVE PROGRAM 2688.00
Jess, I’m not asking about filing FOR my financial aid. I’m talking about filing taxes and whether I need to report my financial aid that I already received as income. Thank you for trying to help though.

Answer: Neh, Jess, that’s not correct.

The tax treatment of financial aid depends on two things – the form of the aid, and how the aid is spent.

Any aid that represents payment for work – and I’m talking here about things like the Federal Work-Study program or the stipends that are paid to graduate students (or advanced undergrads) for working as a teaching assistant or a research assistant – those forms of aid are always taxable, because they’re considered a form of “earned income”.

If you are a degree-seeking student and you receive a scholarship or a fellowship and use the money for:

Tuition
Fees
Books
Supplies or
Equipment

the scholarship or fellowship is tax-free, and need not be reported to the IRS.

On the other hand, if any scholarship or fellowship money is used to pay for:

Room
Board or
Travel

those funds are taxable, and must be reported.

Pell Grants are treated as scholarships for the purpose of IRS regulations. So, again – if the money is used exclusively to pay for tuition, books, fees and equipment, it is non-taxed, and does not need to be reported.

So – long story short – so long as you did not use any of that $8281 to pay for room, board or travel expenses, all of it is non-taxed, and you don’t need to report it. If you used any part of it for a non-allowable expense, you must report the amount that was paid.

Good luck! I hope that helped. For more info – you can review the rules in IRS Publication 970, which I’ve linked to, below.

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