Pell Grants are available to qualified applicants who need help financing their college educations. Because a Pell Grant is a need-based grant -- based on the recipient's financial situation -- anything you claim on your taxes can affect your future eligibility. There's no hard and fast rule that the American Opportunity Credit will alter your Pell Grant eligibility, but if your tax deductions alter your financial picture, you could be eligible for less money.
Reporting the Pell Grant
The amount of money you'll receive through a Pell Grant depends on your enrollment status and income. Students without the financial means to pay any money for their educations, and who are enrolled in school full-time, can gain a maximum annual award of $5,645. As your income goes up, so does your expected educational contribution. This results in a lower Pell Grant award. If you can afford to contribute $5,082 or more to your education, you can't receive a Pell Grant.
Claiming the American Opportunity Credit
If you make less than $80,000 per year -- or $160,000 for married couples filing jointly -- the American Opportunity Credit allows you to get a credit for up to $2,500 of qualifying education expenses. The credit won't reduce your taxable income. Instead, it reduces the amount of taxes you have to pay, and can help you get a refund at tax time.
Need-Based Financial Aid
Because the American Opportunity Credit doesn't reduce your taxable income, it won't lower your expected family contribution to your education. If you're already eligible for a Pell Grant, it's unlikely that receiving the credit will alter your eligibility. Instead, your eligibility is based on your entire financial picture. If the credit helps you receive a tax refund after filing your taxes, this is a repayment of money you've already paid in withholding or estimated taxes, so it won't affect your reported income.
Credits vs. Deductions
Although a tax credit won't affect your Pell Grant eligibility, claiming too few deductions can. You can deduct some of your tuition and expenses. If you don't deduct anything because your education is covered by a Pell Grant, this could affect your adjusted gross income and therefore your grant eligibility. The more deductions you claim, the lower your AGI. Similarly, changes in your income -- such as a new, higher paying job -- may also render you ineligible.
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