Does receiving financial aid reduce your federal tax refund the next year?
Wondering if receiving financial aid this summer/fall can have any impact on my tax refund next year.
No loans. Pell Grant and/or scholarships only.
- Bostonian In MOLv 78 years agoBest answer
Loans have no tax impact because it is money that you must repay. If you are making payments on student loans, the interest is deductible even if you don't itemize. Most student loans are deferred while you are in school so there are no tax savings for that in most cases until you complete your studies and start repaying the loans.
Proceeds from grants and scholarships are not taxable as long as the money is used for eligible education costs. Any excess used for other expenses is taxable income to you.
If you are paying out of pocket for your education, including using the proceeds from loans that you alone are responsible to repay, you may qualify for one of the education credits as long as you cannot be claimed as a dependent. See IRS Pub 970 http://www.irs.gov/pub/irs-pdf/p970.pdf for further information on the tax benefits for education.
- CarVolunteerLv 68 years ago
If the aid (not loans) reduces your own out of pocket expenses enough, it could reduce your education credits, since those are based on what you paid. Since a credit won't give you more than you paid, you can't lose any money by getting the aid.
- JudyLv 78 years ago
It would only affect your refund if your scholarships totalled more than your eligible school expenses - then the extra would be taxable income so your refund would be decreased, or if the amount was high enough, you could even owe.
For example, if your scholarships paid for room and board, that part would be taxable income to you.
- troLv 78 years ago
if you used any of the money for something other than education you may have to claim that as income and this might affect your refund
- What do you think of the answers? You can sign in to give your opinion on the answer.
- Anonymous8 years ago
I'm assuming by "Financial aid" you're referring to school loans?
If so, it will be the opposite. You should receive MORE of your money back because you are a student.Source(s): I'm a student with financial aid.
- 8 years ago
No, it will not affect your return.