Does Federal Work-Study Count as Income?

Federal Work-Study (FWS) is a federal financial aid program providing part-time employment opportunities to students with financial need. This program enables students to earn money to help cover their educational expenses, such as books, supplies, and living costs. A common question arises regarding whether these earnings are considered income for tax or financial aid purposes. Understanding the classification of FWS earnings is important for students managing their finances and planning for future aid.

Work-Study Income for Tax Purposes

Earnings from the Federal Work-Study program are generally considered taxable income under federal and, in most cases, state income tax laws. FWS wages are subject to standard income tax withholding, similar to other employment. Your educational institution or employer will issue a Form W-2 by January 31st of the following year, reporting your total FWS wages.

A key distinction for FWS earnings involves FICA taxes (Social Security and Medicare). Students enrolled at least half-time and employed by their school in a work-study position are usually exempt from FICA taxes. This exemption means FICA taxes are often not withheld, reducing the overall tax burden compared to other employment. Students should verify their FICA tax status with their school’s financial aid or payroll office.

Work-Study Income for Financial Aid Purposes

Federal Work-Study income is treated differently for financial aid purposes than for tax purposes. When completing the Free Application for Federal Student Aid (FAFSA), FWS earnings are excluded from the calculation of your Expected Family Contribution (EFC). This exclusion means FWS earnings do not negatively impact your eligibility for future federal financial aid.

This contrasts with income from regular part-time jobs, which generally contributes to the EFC calculation and can reduce future financial aid eligibility. The FAFSA Simplification Act ensures FWS earnings do not count against your aid eligibility. This policy helps students meet educational costs without jeopardizing access to grants, scholarships, or other aid.

Reporting Work-Study Income

You must report your Federal Work-Study earnings on both your tax returns and the Free Application for Federal Student Aid (FAFSA). For tax purposes, your total FWS wages will appear in Box 1 of your Form W-2. Report this amount as wages on your federal income tax return, typically Form 1040.

For financial aid, report your FWS earnings on the FAFSA in the designated “Federal Work-Study earnings” section. Although reported, the FAFSA system automatically excludes these earnings from the calculation of your Student Aid Index (SAI), which replaced the EFC. This automatic exclusion ensures that while disclosed, the income does not reduce your eligibility for need-based federal student aid.