Taxable Income: Earnings from work-study positions are subject to federal and state income taxes. Students must report this income on their tax returns. Typically, employers will provide a Form W-2 detailing the total earnings and the amount of tax withheld.
FICA Taxes: Work-study earnings are generally exempt from Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare, provided the student is enrolled at least half-time and the work is performed on campus.
Education Credits: If work-study earnings are used to pay for qualified education expenses, students may be eligible for education tax credits, such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). It's important to note that the same expenses cannot be used to claim multiple benefits.
FAFSA Reporting: When completing the Free Application for Federal Student Aid (FAFSA), students must report work-study earnings. However, these earnings are excluded from the student's adjusted gross income when calculating financial aid eligibility, ensuring that work-study income does not negatively impact future aid.
Understanding these tax implications ensures that students comply with tax regulations and maximize available education benefits.