Pell Grants are a source of financial aid offered by the U.S. federal government to the students from low economic backgrounds to pay their first bachelor's or applied program's fee through the applied institutions. Eligibility criteria for the Pell Grant are governed by Free Application for Federal Student Aid -FAFSA.
Pell Grants are financial rewards ad are tax-free. However, they are taxable on the way you see it. Using the grant money for non-academic causes result in acquire taxes.
Should I Repay Pell Grants?
Pell grants are the type of financial aid option where a candidate need not pay back the amount. But, under few circumstances like discontinuation from the applied course and other parameters. They may demand you to repay the Grant. Sometimes, you should partial amount. The repayment of the Pell Grants depends upon many factors as well. you should keep up with the eligibility and requirements for the Pell grants.
Unless or otherwise, there is no need for students to pay the Pell Grants back.
Are Pell Grants always tax-free?
One of the frequently asked questions is, "Do you pay taxes on pell grants?", the answer is No, Pell Grants are not always completely tax-free. It depends upon the way you use the money.
These are free of tax when used them on qualified educational expenses. Anything apart from this would be taxable. For instance, Purchasing an academic book under the syllabus is non-taxable. But using Grants to buy reference books come under taxable money.
What are Qualified Educational expenses?
These are the type of expenses that include tuition fees, books, equipment, and other academic expenses. Except for the room and boarding fee, most of the educational fees come under this category.
That means money used for the hostel is considered taxable.
How to calculate your taxable amount?
Assume you receive a Pell Grant of the total sum amount of $6,000 and out of which, you pay $4,000 as tuition fee and $1,000 for books.
You use a balance of $1,000 for hostel and transportation. As tuition and book fees come under Qualified Education expenses, they are completely tax-free whereas, the hostel and traveling expenses don't.
So, the $1,000 you pay for it becomes taxable.
Who should pay the tax money?
"Should my parents pay my taxes?" or "Should I pay the Tax of my child?" is one of the frequent questions asked by students and parents respectively. If you are an independent student, Your parents don't need to pay the tax as it is not their income. If not, parents must pay the tax in case of a dependent student.
Getting a Pell Grant may or may not be easy but maintaining the Pell Grant and a Tax record becomes a hectic job if you do not systematically do things.
The money you received may be small or wholesome, it is your duty to keep every penny under your control. At the end of the day, you are accountable for the money you spent through it. Keep these things in mind, while calculating the taxable Pell Grant.
Each semester notes down your Qualified and Unqualified educational expenses separately and keeps a perfect tax record.
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