Are my refunded college grants taxable?

[litzyrios13]

So basically I was supposed to receive 2 grants for Fall 2023 .. unfortunately I did NOT receive them until 2024. At this point I had already graduated (I graduated Fall 2023) and had paid the tuition I owed OUT OF POCKET. If I had received the grants on time I would have obviously applied it to my tuition and the grants would have NOT exceeded what I owed (meaning I would have still had money to pay for out of pocket). Since I received the grants too late I did NOT use the money for tuition/related expense because I didnt have ANY since I had already graduated. 

My question is this: Are these grants considered income or not? 

I am stuck since I had to pay more than I needed to in 2023 due to no receiving these grants.

Thanks in advance and God bless! 

[KrisD15]

You can allocate the Grants received in 2024 to the tuition paid in 2023.

You don't mention if they are reported on a tax form, such as Form 1099-MISC

The only issue you might need to address is if you received an education credit on your 2023 return for the expense you paid out-of-pocket in 2023 that you are now allocating to the 2024 Grant. 

If you used those expenses for a credit on the 2023 return, you may need to "recapture" some of the credit on your 2024 return in order to now use those expenses to offset the Grant. 

If you need to recapture an education credit from 2023, TurboTax can help. 

Type    education credit recapture    into the search and click the jump-to link.

This would only apply if you had an education credit for 2023 and the expenses you used for the credit were refunded by the Grant. 

According to the IRS:

"Refunds. A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Some tax-free educational assistance received after 2024 may be treated as a refund. 

Credit recapture. If any tax-free educational assistance for the qualified education expenses paid in 2023, or any refund of your qualified education expenses paid in 2023, is received after you file your 2023 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2023 by reducing the expenses by the amount of the refund or tax-free educational assistance.

You then refigure your education credit(s) for 2023 and figure the amount by which your 2023 tax liability would have increased if you claimed the refigured credit(s). Include

that amount as an additional tax for the year the refund or tax-free assistance was received."

[litzyrios13]

@KrisD15 

I never filed 2023 taxes because I didn't need to so I never received a credit and I dont really care to as long as im doing my taxes honestly (: . Do you think it would be okay to just completely leave the credit/1098-T out of my 2024 taxes? My worry is that the grant counts as "income" since the money received wasn't used for school expenses - due to it arriving LATE/after I graduated and after having paid for tuition out of pocket. 

I did receive a 2024 1098 T form, however it was because the tuition I owed for Fall 2023 rolled into 2024 (about $6000).. it also includes the grants received - the ones that were supposed to be given to me for Fall 2023, but didnt come in until 2024. 

P.S. I also did not receive a 1099 MISC 

[KrisD15]

Since you didn't need to file for tax year 2023, you needn't worry about recapturing any credits. 

Yes, leave Form 1098-T off your tax return (don't enter it into your TurboTax program) as long as

1.     You never got more in Grants/Scholarships than what was (eventually) paid for education expenses 

2,     You never paid more expenses making you eligible for an education credit

Expenses and Grants can cross years

Expenses can be paid in the year of the classes that year and/or the first three months of the following year

Scholarships and Grants received in one year can be treated as a refund for expenses paid the previous year or as an advance payment for expense of the first three months of the following year. 

Keep Form 1098-T and a copy of your school statements with your tax file. 

[litzyrios13]

@KrisD15  

so sorry.. I get point #1: no my grants did not/would have not exceeded my school expenses had they arrived on time, but what do you meaning by point #2 

" You never paid more expenses making you eligible for an education credit" ? 

thanks 

[KrisD15]

It means that if you ever paid more in tuition, fees, book and supplies than what you received in Grants, you can use the excess expenses towards a possible education credit. 

You say you graduated in 2023, so there would be no possibility for you to be eligible for an education credit for tax year 2024. 

We do need to write our answers so that they cover situations that another customer might be in that reads the same answer.