There are many instances when students will need to accept grants and scholarships or borrow money to assist with the payment for higher education. Fortunately, student loans don’t have to be reported as a source of income on your tax return. Furthermore, you won’t need to pay taxes when it comes to some kinds of financial aid. However, canceled or settled debts as the result of student loans are usually taxable.
The U.S. doesn’t tax private or federal student loans as an income, but you might have to pay taxes on the following:
Here are just a few examples of financial assistance for schools that you won’t need to pay taxes on:
Federal and private student loans aren’t taxable since these will need to be repaid. Unfortunately, finishing school while having a student loan doesn’t mean you’re ahead of the others; you’ll have to pay back every cent at some point in your life. The faster you can do this, the better it will be for you in the long run.
According to the IRS, you need to be seeking out a degree within a qualified educational institution, where the payments you receive need to be used on supplies, books, and tuition fees to ensure they aren’t counted as taxable income. You will, however, need to pay taxes on expenses such as travel, incidentals, as well as room and board.
There are types of accounts that can grow tax-free and used to pay for eligible expenses towards education. These include:
RAs, (dorm resident advisers) typically deal with long hours and some drama, but this job also comes with perks which are typically free room and board. Generally, income tax won’t apply to such benefits. This is because you’re required by the college or university to live within its premises as a condition of your employment.
The only time when you need to worry about having student loan income is when your loans have been forgiven. In general, if more than $600 of your loans have been forgiven, you’ll need to report this amount as income. However, there are also certain loan forgiveness programs.
These include the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs. Furthermore, death and disability, closed school, and false certification discharges are also included. Moreover, if you have a remaining balance that’s been forgiven and are on an income-driven repayment plan, the balance that remains will also be taxed as income.