Filing Taxes as a College Student
Pursuing a post-secondary degree or certification is one of the largest milestones in adulthood. Whether you’re a full-time college student, attending a vocational college, or you’re working your first job, you’ll likely have to file your own taxes this year. Filing taxes as a student may seem stressful, but it’s a great time to take advantage of education credits and tax deductions.
Take Your Time
If you’re a college student filing taxes, give yourself plenty of time to submit your forms. If you rush through your taxes, you risk making errors and missing out on important deductions and credits. Errors on a student tax return can affect your standing with the IRS, and put you in unnecessary debt that makes filing more complicated.
Before you file, consider consulting a tax professional. Your school may provide services to help you prepare your taxes and answer any questions. Whatever method you choose, learn the ins and outs of tax preparation to help you file in the future.
Do I File with My Parents?
In many cases, you’ll file your taxes independently of your parents. There are some conditions in which your parents might include your income in their tax return, including:
- You are not filing a return or a joint return.
- Your gross income was under $10,150.
- You were under 19, or under 24 and a full time student by the end of the year.
- No estimated tax payment was made for this year and no overpayment was made the previous year.
- No amount of federal income tax was taken out of your income due to backup withholding.
What Tax Forms Do I Need?
Depending on your current work and college student tax status, you should expect to receive tax forms in the mail. You (or your parent) will need the following forms to file taxes.
If you had a job on or before December 31, you’ll receive a W-2 from your employer. This document contains any taxes that were withheld from your paycheck. If you don’t receive one, contact your employer for a paper or digital copy.
Your college will provide this form. This is a tuition statement that includes all the information you’ll need to report in order to claim education credits. This includes tuition paid and related expenses, scholarships, grants, and any adjustments made from the previous year.
This form will indicate whether you qualify for education credits, including the American Opportunity Credit and the Lifetime Learning Credit.
This document helps you deduct any interest you paid on a student loan during the tax year. Your lender will send you this form if you paid over $600 in interest. If you anticipate this form but don’t receive it, contact your lender.
Keep a copy of these forms in your records for the duration of college career so you may refer to them at any time.
Types of Education Tax Credits
A tax credit is an amount of money that can offset a tax liability. Unlike deductions, tax credits are subtracted from the filer’s taxes, not taxable income; this reduces taxes dollar for dollar. These credits have the same value for everyone who can claim their full value.
American Opportunity Credit
This tax credit is designed for undergraduates who have not completed the first four years of postsecondary education. In order to qualify, you need to be enrolled in a program at a recognized postsecondary educational institution working toward a certificate or degree. You must’ve also taken at least one half of the required credits during at least one of your academic periods.
This credit allows a maximum annual credit of $2500 for the cost of tuition, fees, and course materials paid as of December 31. The American Opportunity Credit is 40% refundable, so you can get money back even if you don’t owe. You may claim this credit if your modified adjusted gross income is $80,000 if you’re filing single, and $160,000 if you’re filing jointly.
Lifetime Learning Credit
This credit permits you to claim a credit of up to $2,000 on qualifying education expenses. As a credit, this money is nonrefundable, but it can reduce the amount you owe in taxes.
If you’re an eligible student at an accredited college or university, you may qualify for this credit. In order toqualify, you can’t make more than $60,000 in modified adjusted income if filing single, head of household, or as a widower. If you’re married filing jointly, your modified gross adjusted income must be no more than $130,000.
Unlike the American Opportunity credit, there is no limit to the number of years you can claim it. However, you can’t claim both the Lifetime Learning and American Opportunity credits at the same time. You also can’t claim this credit while deducting fees and tuition. You aren’t eligible for this credit if you’re a dependent or you’re married filing separately.
Tax Deductions and Higher Education Expenses
A tax deduction reduces the tax obligation from a taxpayer’s gross income. You can deduct a variety of expenses that you’ve incurred throughout the year. Tax deductions are subtracted from taxable income, also known as the adjusted gross income. The lower the income, the lower the taxpayer’s overall tax liability. This results in a higher return.
You or your parents may deduct up to $4,000 in qualified college costs. These deductions will reduce your (or your parent’s) taxable income. If you’re still claimed as a dependent, you can’t claim this student tax refund, but your parents can.
Eligible expenses include:
- Tuition fees
- Required fees for enrollment
- Some course materials
Keep in mind that you can’t claim an education credit and a tuition-and-fees deduction in the same year. A tax expert can help you determine which strategy is best.
What Doesn’t Qualify
- Any expenses already reported on another deduction, credit or benefit
- Cost of living, including dorm rooms
- Transportation to and from class
- Any item that was paid for with tax-free educational assistance
- Health insurance costs and medical costs
- Any items that aren’t required by your class, such as a new computer
Deducting Student Loan Interest
If you pay interest on a current student loan, you may be eligible to deduct up to $2,500 in interest from your taxes. To qualify, the loan must have only been used to pay eligible higher education expenses. Below are the qualifications you’ll need.
- Cannot be claimed as a dependent on a tax return.
- Cannot be married filing separately.
- Must have paid interest on a qualified student loan in the tax year in which you’re filing.
- Must be legally required to pay interest on the loan.
If you paid interest on a loan, you should receive Form 1098-E provided by your lender. Many lenders offer both digital and paper copies of your form. Contact your lender if you want to access your forms online.
College is expensive, so looking for scholarships and grants should be on every college student’s agenda. If you’ve received scholarships, grants, or fellowships, this can alter your taxes. These benefits are considered tax-free, but only if you’re using the entire amount to pay for tuition, fees, and required materials for your classes.
In some cases, portions of your scholarship may qualify as income, so they can’t be deducted. If you used a portion of your scholarship for living expenses like rent and food, you’ll need to report that amount as taxable income on Form 1040.
What if I Owe Taxes?
If you owe taxes, don’t fret; there are payment options available to help. The IRS offers several payment plans, including:
Installment agreements allow you to pay portions of your debt one month at a time. Request a payment agreement if you believe you’ll be able to pay the full amount within the extended time frame. If you choose an installment agreement, you’ll be subject to interest accrual.
Offer in Compromise:
If you think you won’t be able to pay the full balance within a reasonable time frame, apply for an offer in compromise. An offer in compromise allows you to settle your tax debt to less than the full amount you owe. The IRS will consider your ability to pay, your current income, your expenses, and asset equity.
If you need help filing your taxes or choosing a payment plan, hire a tax professional to help. A tax expert from a service like Community Tax will guide you through your taxes, help you avoid pitfalls, and take advantage of important deductions and credits.