If you don't use all of your Pell grant money for qualified education expenses, you need to determine how much of the grant to report on your tax return. Schools commonly combine all student charges in one account. For example, suppose your expenses for the semester are $4,000 for tuition, $2,000 for room and board, and $500 for required textbooks. If you receive a $3,000 Pell grant and use it on tuition and/or books, you won’t have to report any of it on your tax return. If you receive a $5,000 grant, $500 of it will be taxable since you only incurred $4,500 of qualified expenses ($4,000 for tuition and $500 for required books).
Regardless of the tax form you use, you need to report the $500 in the above example on the “wages and salary” line and enter “SCH” to the left of the amount. Just because you report the Pell grant as taxable income, doesn’t necessarily mean you will pay tax on it. This depends on other factors such as the amount of other income you report, your filing status, and the deductions and credits you’re eligible for.