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College Financial Aid

If you apply for financial aid, you might need to provide a copy of your federal return. You’ll use Form 4506 to ask the IRS to send a copy of your return to a third party if you filed:

  • Form 1040
  • Form 1040A
  • Form 1040EZ

If you're asked only for IRS verification of your income, use Form 4506-T or Form 4506T-EZ.

Types of financial aid

Scholarships -- Scholarships include amounts paid for:

  • Academic abilities
  • Athletic abilities
  • Musical abilities
  • Other abilities

If you're a degree candidate, you’ll only pay tax on the part of a scholarship you used to pay for things other than tuition and required fees. Required fees are items required for all students in a particular program.

Scholarship amounts used for these are taxable:

  • Room and board
  • Travel
  • Research
  • Clerical help
  • Equipment -- unless required of all students in the course

Grants -- These grants are treated like scholarships and are tax-free if used to pay for qualifying expenses:

  • Pell Grants
  • Supplemental Educational Opportunity Grants
  • Grants to states for state student incentives

If you use money from these grants for travel to and from school, it’s taxable.

Payments are tax-free for these items received under Department of Veterans Affairs (VA) administered laws:

  • Education
  • Training
  • Subsistence

Fulbright grants -- These grants might be awarded for study, research, or teaching abroad. They’re usually treated like any other scholarships in figuring how much of the grant is tax-free.

Reporting financial aid -- Don't report nontaxable scholarship amounts on your return. Include taxable amounts with wages -- even if the scholarship amounts aren't shown on a W-2. To report the aid:

  • On Form 1040EZ -- Include the taxable amount on Line 1. If the income wasn’t reported on a W-2, print “SCH” and the taxable amount in the space to the left of Line 1.
  • On Form 1040 or 1040A -- Include the taxable amount on Line 7. If the income wasn’t reported on a W-2, print “SCH” and the taxable amount on the dotted line next to Line 7.

Higher education benefits -- The government gives you these benefits while you're attending a higher-learning institution:

  • American Opportunity Credit -- For 2009 to 2017, you can claim this credit for the first four years of college. You must be enrolled in at least half of a full-time load in a degree program.
  • Lifetime Learning Credit -- You can claim this credit for any number of years. This credit applies to the family as a whole, not on a per-student basis. These aren’t factors for eligibility:
    • Number of hours you're enrolled
    • Enrollment in a degree program
  • Tuition and fees deduction -- This deduction expired on Dec. 31, 2013. You can only claim it on prior-year returns.

State taxes

Attending school in a state that’s not your home state isn't considered a permanent address change. If you're attending college out of state, you'll still file taxes with your home state.

However, you'll file a return in both states if either of these applies:

  • You earn income in the state where you attend college.
  • You’re considered to be a statutory resident of the state where you attend college.

If you’d like to learn more, see the Education tax tips.

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