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Question for the Money Doctors

Question submitted on Apr 8, 2020.

Question

Is income earned from a federal work study program as part of a students financial aid package of a full time student taxable at a local Municipality's level?

Answer

The short answer is that the income is probably taxable at the local level.  You didn't specify which municipality you were involved, so this answer is limited to some general thoughts.  The income is taxable for Federal income tax purposes, and many states and localities use the same principles to determine taxable income.  Of course, this would make the income taxable.  Interestingly, work study income can be exempt from FICA(e.g., Social Security and Medicare) tax if the recipient is employed part-time by the school and is a full-time student.  People are sometimes surprised to discover that there's a difference in how income is defined for Federal income tax and FICA.  So if your municipality uses the FICA definition of earned income, it's possible that your work study earnings would not be taxed.  Although an exemption isn't likely, it's worth taking a look at how the municipality defines earned income just to be sure.


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