Tax Tip of the Day: Exclusion from Income

Scholarships, education plans and other factors to consider for your taxes.

Scholarships. A student enrolled in an educational program may receive a scholarship or fellowship to pay for all or part of the student‘s tuition and fees. These amounts are not included in the student‘s (or the parent’s) income. Need-based education grants, such as a Pell Grant, and tuition reductions are also excluded from income. However, amounts paid for work on campus may be taxable as compensation for services. Payments to cover room and board as opposed to tuition are also subject to tax.

Loan cancellation. Most students take out loans to pay for education expenses. Normally, if a debt is cancelled, the debtor has taxable income. However, if a student loan is canceled or reduced, the cancelled amount is not included in income.

Employer assistance. If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. Courses do not have to be related to your job. If they are related, further tax benefits may be available.

Education plans. Generally, amounts paid to establish an education plan, account or savings bond are not deductible. However, income on the account can grow tax-free (unlike a bank account, for example), and distributions of income from the account are not taxable if they are used for tuition and other qualified education expenses. These general rules apply to a Coverdell Education Savings Account (an education IRA), a qualified tuition program (QTP or “529 plan”), and certain U.S. savings bonds. In the last category or Series EE bonds issued after 1989 and Series I bonds. A qualified tuition program is established by a state and may provide payments for prepaid tuition or an account with tax-free earnings.

Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Get tax tips right here every day through April 15—exclusively from Berrios & Associates, Inc. on Danshamptons.com! 

Berrios & Associates, Inc.
Main Client Support Phone Numbers
Tele#631-737-8811
Fax# 631-737-8812
www.berriosassoc.com

About Berrios & Associates, Inc.

Since 1999, Berrios & Associates, Inc. has been providing a distinctive mixture of leadership-knowledge, and customer service satisfying client needs in advisory, tax, and outsourcing. Serving a diverse client base from individuals and sole proprietors to private corporations with nationwide and international locations. In the domain of accounting firms, Berrios & Associates has engraved a distinctive business based on diverse solutions through the interpersonal relationship of corporate and personal tax, corporate back office support, and business growth advisory. The firm directs clients through their everyday operations to ensure they have the right business model in place to meet their business goals.

BACK TO Your Money Matters

 

Please log in to vote


You need to log in to vote. If you already had an account, you may log in here


Alternatively, if you do not have an account yet you can create one here.