Understanding Work-Study Income and Navigating the Tax Maze

Key Takeaways

Work-study earnings are taxable, but they won’t impact your financial aid eligibility.
You may be eligible for the American Opportunity Tax Credit (AOTC) which allows you to claim up to $2,500 per school year.
You will use your W-2 form given by your employer to fill out your federal and state taxes each year.

Are you considering a work-study program as a way to help pay for your education? Alongside scholarships and grants, joining a work-study program is a smart way to earn money—especially before turning to loans. While work study has its perks, it also comes with questions. One of the most common questions is: Is work-study income taxable? The short answer is yes, but there’s more to it than that. Let’s look at how a work-study affects your financial aid, the tax credits and deductions you can use, how you report it on your taxes and to FAFSA, and also whether a work-study job or a part-time job is more worthwhile.

What Is Work Study?

The Federal Work-Study Program is a form of financial aid that is given to students who demonstrate financial need. If interested, you must select so when completing your FAFSA. Unlike scholarships that are essentially free money* or loans that must be paid back, students who are accepted to work study are required to work part-time jobs (usually on campus) to pay for tuition, room and board, textbooks, and other school-related expenses.

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Types of Work-Study Jobs

Most work-study jobs take place on campus and often accommodate your academic schedule. You may even find one related to your major. Some examples include:

Library Assistant
Office Assistant
Tour Guide
Marketer
Art Department Assistant
IT Support
Tutor
Fitness Center Assistant
Research Assistant
Computer Lab Technician
Day Care Assistant
Mail Room Assistant
Local Organization Positions

Are My Work-Study Earnings Taxable?

Yes, your earnings from work study are taxable income that is subject to both federal and state taxes. However, you should be exempt from FICA taxes if you’re a full-time college student that’s working part-time. Be sure to talk with your financial aid office to see if you qualify for an exemption or to clarify any other work-study questions you may have.

Can I Use Any Tax Credits?

A tax credit reduces the amount of taxes you owe. For example, let’s say you owe $1,000 in taxes and you have a $200 tax credit. When you complete your tax return, you will only have to pay $800. If you’re using earnings from your work-study program to pay for qualified educational expenses (i.e., tuition, room and board, textbooks), then you may be eligible for the American Opportunity Tax Credit (AOTC).

If you qualify for the AOTC, you can claim up to $2,500 for each of the first four years of college. To claim the credit, your school should send you a 1098-T form (a tuition statement) by January 31. You will submit this form with your tax return.

How Do I Report Work-Study Earnings on My Tax Returns?

Your employer, which is usually your college, will provide you with a W-2 form that will detail your total earnings for the year. Box 1 shows your total taxable wages and Box 2 indicates the total federal income tax being withheld.

Example sourced from irs.gov

You’ll use your W-2 form to complete your federal tax return (Form 1040). Using your W-2, you’ll enter the amount shown in Box 1 onto Line 1a, located in the “Income” section of Form 1040. Make sure to also enter the amount of federal income tax withheld (Box 2 on your W-2) onto the “Federal income tax withheld” line (Line 25a in the “Payments” section).

Example sourced from irs.gov

You will need to file your taxes by April 15th, so make sure you give yourself enough time to fill everything out accurately. If you want help filing your taxes or just want to ensure you report your work-study earnings accurately, the IRS offers a program called IRS Free File that prepares and files your taxes for free.

Do I Report Work-Study Earnings on My FAFSA?

When filling out your FAFSA each year, you do need to report your work-study earnings because it counts as income. Since financial aid is based on how much money you make, you don’t want your work-study earnings to hurt your chances of getting the aid you need. But don’t worry—this portion of the FAFSA is evaluated differently than it is on your tax return. There’s a special section on the FAFSA to mark that this income is from a work-study job. When you do this, it won’t count against you when they figure out how much aid you’re eligible for. Also, remember to report all your earnings based on the calendar year—not the academic school year.

Is It Better To Participate in Work Study or Get a Job on My Own?

Deciding to work during college is a big step—it helps you manage your money, balance responsibilities, and grow as a person. Whether you choose a work-study job or a regular part-time job depends on your goals and what works best for your needs. Let’s look at the pros and cons of each to help you decide:

Work-Study Jobs

Pros	Cons
You get a flexible schedule that works around your classes.	You are generally capped at 20 hours per week.
Your earnings don’t count towards your financial aid and go towards educational expenses.	You need to qualify for financial aid to be eligible.
On-campus jobs are convenient and are great for networking.	Your job options are limited to those on campus.
You can often choose a job related to your future career.

Part-Time Jobs

Pros	Cons
There are typically more hours available if you need extra income.	They could be less flexible with your class schedule.
Some part-time jobs pay more than work-study jobs.	Your earnings will count when you fill out the FAFSA which may prevent you from receiving the same amount of financial aid in the future.
You’ll have a large choice of job options off campus.	Your job—whether it be a retail associate, server, or barista—might not align well with your future career goals.
They are open to everyone and there’s no need to qualify for aid.

A work-study job is a great way to earn money for your education—all while getting to keep a flexible schedule and gaining valuable skills. Yes, you’ll need to report your earnings on your taxes and FAFSA, but here’s the good news: It won’t affect your financial aid! You get to keep your educational support funds and get a little practice on the “oh-so-fun” task of filing taxes.

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