It’s back to college time and lots of students have employment on or off campus. Here’s a rundown of what is and what isn’t taxable to students.
Scholarships and fellowships: If you are a degree candidate, you can exclude from your income scholarship money used for tuition and fees, or for classroom books, fees, supplies or equipment. If you use your scholarship for room and board, that’s taxable. If you are not a degree candidate, then all of your scholarship or fellowship is taxable. For example: let’s say you received a scholarship for $40,000. Your tuition is $32,000 and your room and board is $8,000. $8,000 of your scholarship would be taxable. (Of course, saving your receipts for your books and fees would reduce your taxable portion.)
Most students who receive scholarships are not going to be taxed on them, but every year I come across at least one student who received a free ride and wound up having some taxable income from it. It’s just something you need to be aware of.
Fulbright students and researchers: these follow the same rules as scholarships and fellowships.
Fulbright grant for lecturing or teaching: this is a little different, it counts as a payment for service and that’s taxable. You need to know the difference once you’ve got a Fulbright.
Pell Grants, Supplemental Educational Opportunity Grants, and State Grants: these are not taxable as long as they are used for tuition. I’ve seen cases where students get these grants and don’t go to school and go to school and use the money for something else instead. (Okay, true story, one got a breast enhancement and went to work for Hooters.) If you do that, the money will be taxed. Your Pell Grant is for tuition!
Reduced tuition for school employees and their children: this is not taxable to undergraduate students, but taxable to graduate students. There is an exception for the graduate students though, if they perform teaching or research activities, then the reduced tuition is tax exempt.
Contest prizes: If you win a prize but you don’t use it for education, then it’s taxable. If it’s used for tuition and fees, then it’s not.
ROTC: the subsistence allowance that you get paid in advanced training is not taxable, but the active duty pay you get is something like the summer advanced camp and is taxable.
Work study jobs count as wages and you should be getting a W2 for that work just like you would any other job. That’s taxable income.
Self-employment: this is really tricky because companies often hire college students for jobs but they’re not employees, they’re contract labor. In a case like that you have to pay self employment tax. Right now, that’s 13.3% of your income over and above and other income tax you might have to pay. I see lots of students get burned at tax time because they didn’t know about that little rule. It’s often called a 1099 job. It’s okay to have a 1099 job, but just know there are extra taxes involved. If you’re thinking about taking a contract labor job, check this site out for more information: http://robergtaxsolutions.com/2010/09/employee-or-contract-labor/