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Taxable Pell Grant question
Old 07-23-2020, 01:04 PM   #1
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Taxable Pell Grant question

Hi all.

I believe the following to be true and accurate:

1. Pell Grants are given to undergraduate students with financial need.

2. If a student has, say, $10K in tuition/books/fees and a $2K Pell Grant, then they can just pay the school the $8K difference.

3. There are certain tax circumstances where it is better to have the student pay the whole $10K and get the $2K Pell Grant back. In doing so, the Pell Grant becomes taxable income reported on line 1 of Form 1040 (probably with the notation "SCH").

(This is where I get a little fuzzy.)

4. The Pell Grant can be used for "personal expenses" which are required for college but not billed by the college. Examples I have read about include transportation to/from school (mileage or plane tickets, I suppose), and possibly health insurance.

5. If one had these "personal expenses", then those costs would be considered paid for by the Pell Grant and thus could be subtracted from the amount listed on line 1 of Form 1040. So continuing the example above, a student could spend $500 on a plane ticket to get to/from school and only report $1500 of SCH income on line 1.

What I can't seem to find anywhere is a list of what expenses qualify for this kind of tax treatment. I've googled a lot and can't get an on-point answer on any web page I've read, and Pub 970 didn't seem to answer this question when I searched it.

Anyone know for sure?
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Old 07-23-2020, 02:44 PM   #2
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4 - The Pell Grant funds can be used for any living expenses.
5 - I believe this is incorrect. Any part of the Pell Grant that is not used for “qualified tuition and related expenses” (QTRE) is taxable to the student.

This Fact Sheet may be useful: https://www.irs.gov/pub/irs-utl/Pell...04%20pager.pdf
Also this Tax Topic: https://www.irs.gov/taxtopics/tc421
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Old 07-23-2020, 04:35 PM   #3
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Thanks cathy63! I'll take a look at those resources.

If 5 is incorrect, there are some web pages out there that are wrong. Imagine that!
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