Financial aid taxes
Most of the universities allocate 30% of the Financial Aid Award amount to taxability of scholarships, assistantships for international students. Few of the international students will be befitted from the special tax exemptions between the US and their domestic country depending on their visa type, Financial Aid Award type and duration of staying period in US. The income earned from the Federal Work-Study is exempted from the FICA taxes which are subject to federal and state income tax. There are so many Federal Tax Benefit Schemes are available to pay the higher education. These include Tax Credits, Tax Deductions and exclusions from gross income
Below are the some of Tax Exemptions:
* Interest on Student Loans
* Take Advantage of Available 529 Savings Plans
* Request that Grandparents Wait Until the Grandchild Graduates High School
* Beware of Trust Funds
* Choose to Return to School at the Same Time as Your Children
* Minimize Your Capital Gains
Below are the Tax updates of Financial Aid:
1. Student Loan Interest Deduction: If the Adjusted Gross Income of a student is less than $50,000 per year is only eligible for tax refundable of $2,500 from the interest paid.
2. IRA Withdrawals: The student who withdraws money from the qualified IRA for educational expenses without incurring the 10 percent penalty for withdrawing before reaching the age of 59-1/2 is exempted from taxable issues.
3. Lifetime Learning Tax Credit: Under the Internal Revenue Service (IRS) program a student is entitled to reimburse the amount paid on taxes.
4. Hope Scholarship Credit: This is also similar to the above method of tax paying but student must be registering their name in an eligible educational institution.
5. Education IRA's: A student may deposit up to $500 a year into an Education IRA tax-free. When the student withdraws the money it will be exempted from taxes as if it is used for educational purpose.
Tax Credit
The Taxpayer Relief Act of 1997 removes the hurdles in higher education by providing Hope Scholarships, Lifetime Learning Credits, and other tax benefits for students and parents. These benefits were improved as part of the Economic Stimulus Bill of 2009. Financial Aid Tax credit helps to reduce your tax liability irrespective of the tax limits.
* Hope Scholarship Tax Credit
If the student is declared as an independent at the time of application, his parents are eligible to get tax credit of up to $1,500 per year of two years of college.
* Lifetime Learning Tax Credits
If a student pays the educational expenses of her/his own, they can pay back up to $2,000, or 20% of allowable education expenses like tuition and fees; books, supplies and living expenses.
Tax Deductions:
Tax deduction reduces the tax paying capacity by lowering income brackets
* College Tuition Deduction
If a student is not eligible for the Hope Scholarship or Lifetime Learning Credit $4000 of tuition fee is deducted from the gross income of taxpayers.
* Student Loan Interest Deduction
A student loan payer can take tax exemption of $2,500 per year from the interest paid in the tax year.