How to File Taxes as a College Student
Attending college is one step towards adulthood.
Unfortunately, with adulthood comes many adult responsibilities; like filing your taxes.
Filing taxes, in general, can be tricky and complicated, but as a college student, it can present even more challenges.
We've put together some tips college students and first-time tax filers should take when it comes to filing taxes.
First Things First: What Are Taxes?
The U.S. government provides numerous services for its citizens, from public education to Social Security, national defense, Medicare, Medicaid, and other programs.
Taxes are the primary way that the government pays its bills. The Internal Revenue Service, or IRS, is the federal agency authorized to collect taxes on behalf of the government.
For most U.S. workers, taxes are automatically withheld from paychecks.
Other taxpayers, especially the self-employed, may pay quarterly estimated taxes.
Still, others simply pay their taxes in a lump sum on tax filing day, although there may be penalties involved.
Your filing status helps determine how much you have to pay in taxes, or if you even have to file at all, as not every worker has to pay taxes.
Tax filing statuses are single, married filing jointly, married filing separately, and head of household.
The head-of-household status is for unmarried people who maintain a home for a qualifying person, as defined by the IRS.
One thing to note:
Your tax return is the actual form that you complete and send to the government when you file your taxes.
Your tax refund is the money you receive back, if any, if your tax return indicates that you overpaid your taxes during the year.
Three Things to Figure Out to Start
Depending on how you answer these following questions, you may be able to put off filing on your own for a little longer. Lucky you.
1. Do You Have to File?
If you’re a dependent and a single filer, you generally don’t need to file a tax return if your earned income is below $12,950. If you have unearned income of at least $1,150, however, you will still have to file.
Earned income is the salary or wage you’re paid for working. Unearned income is passive income from things like investments or rental properties.
If you’re a married dependent, the same income thresholds apply. But if your spouse files separately and itemizes deductions, you’ll have to file if your gross income is $5 or more.
If you earned income and had taxes withheld from your paycheck, you may still want to file, even if you earned below the mandatory filing threshold.
You may be entitled to getting that money refunded to you.
2. What’s Your Dependency Status?
You can be claimed as a dependent by your parents until you reach age 19. If you’re a student, that can be extended until you are 24.
Traditionally, parents claimed their children as dependents because it granted them additional tax exemptions.
For tax year 2022, the dependent exemption at one point was expected to be $4,400.
Your parents are still likely to claim you as a dependent if they can, as they may still be entitled to other benefits, such as the earned income tax credit.
If you have been claimed as a dependent, it means you are not eligible for the deductions or credits that your parents claim for yourself, as those can only be taken by one filer per year.
As a dependent, your income tax filing threshold is different as well.
For example, for 2017, single tax filers didn’t have to file a return unless their income reached $10,400.
3. What Forms Do You Need to File?
Here’s a list of the most common forms that pertain to filing taxes as a student:
Your employer will send you a W-2 at the end of the year. It will document your income for the year, along with any taxes that were withheld from your paycheck.
Your W-2 is the first step in filing your taxes, as it helps determine your taxable income.
Educational institutions must send Form 1098-T to any students who paid qualifying educational expenses during the year. Qualifying expenses include things like tuition, fees or course materials.
You can use Form 1098-T to prove that you paid these expenses so you can qualify for various tax credits.
For example, if you use a 529 plan or IRA money to pay for schooling, you’ll have to demonstrate that is where the money went.
You’ll use Form 8863 to figure out if you’re eligible for either of the two educational credits, The American Opportunity Credit or the Lifetime Learning Credit.
If you pay interest on student loans, you may receive Form 1098-E.
Each lender that receives at least $600 in interest from you on your loan is required to send you Form 1098-E, which specifies the amount of interest you paid.
If you have more than one loan, you may receive a separate Form 1098-E for each loan.
You can deduct the interest reported on Form 1098-E when you file your taxes, up to the limit of $2,500 annually.
If you receive at least $10 in interest payments during the year, you’ll receive Form 1099-INT. This includes banks that might pay you interest on your savings accounts.
You’ll have to include interest reported to you on Form 1099-INT when you file your taxes.
Our Tax Tips for College Students
Filing for your taxes at any age can be a confusing and tedious process.
Follow some of these tips to simplify your process:
When to file
Taxes are due every year on April 15. In some years, this date is adjusted a day or two later so that it falls on a non-holiday weekday.
The earlier you can file your taxes, the better.
If you’re due a refund, this means you’ll get your money faster.
Filing early also takes the commonly unpleasant task off your to-do list.
Tax filing help
To make tax filing easier for yourself, see if your college offers free tax aid, as many do.
You can also use tax-filing software to help you navigate through the maze of tax regulations.
One of the best-known options is TurboTax, which offers both mobile and web applications.
If your tax situation is simple enough, you can file for free using TurboTax.
The same is true with TurboTax competitor H&R Block.
Both options allow you to take a picture of your Form W-2 to get the tax process started. H&R Block offers additional accessibility via the Kindle Fire application.
Or, you can go the old school route, and have an accountant help you file your taxes. Now might be the time to befriend some accounting majors.
Deductions and credits
Deductions and credits lower your taxable income. With a lower taxable income, you’ll pay less in taxes.
Deductions and credit work in slightly different ways.
A deduction is something you subtract from your income.
For example, the government allows every tax filer a standard deduction.
For tax year 2022, the standard deduction for single filers is $12,950. This means you get to lower your taxable income by $12,950 right off the bat.
One of the most useful tax deductions for students is the student loan interest deduction.
This deduction phases out if you’re a single taxpayer with a modified adjusted gross income between $68,000 and $78,000.
The maximum amount of student loan interest you can deduct is $2,500 per year.
Credits are more valuable than deductions because they are a dollar-for-dollar reduction in the amount of actual tax you have to pay.
For example, if you owe $2,000 in taxes but have a $2,000 tax credit, your tax falls to zero.
There are two main tax credits for students:
- The American Opportunity Credit (formerly known as the Hope Credit), and
- The Lifetime Learning Credit
The American Opportunity Credit covers 100 percent of the first $2,000 of qualified educational expenses. The credit also covers 25 percent of the next $2,000, for a total available credit of $2,500.
The Lifetime Learning Credit covers 20 percent of your first $10,000 in eligible educational expenses. However, you cannot claim it if you are a dependent.
Whether you use tax software or file for yourself, be sure to keep all your receipts.
Receipts allow you to construct an accurate picture of your tax situation when you file. They can also remind you of deductions you should be taking.
Perhaps most important of all, receipts are necessary evidence in the unlikely case that you are audited by the IRS.
So, what are relevant receipts you should definitely keep? Any receipts that document your educational spending.
If you pay for books, courses, school supplies, tuition, or anything else that furthers your education, you should keep those receipts.
Most educational scholarships are tax-free. However, you must be eligible for a degree at a qualified educational institution.
The IRS also requires the following to qualify for tax-free treatment:
- It must not exceed your qualifying educational expenses
- It cannot be used for other expenses, including room and board
- It doesn’t require services in exchange, such as teaching or research
Qualified tuition programs
Qualified tuition programs are also known as 529 plans. Money in a 529 plan grows tax-free.
If the money is taken out and used for qualifying higher education expenses, it can be withdrawn tax-free as well.
In most cases, you can’t take money out of an individual retirement account before age 59 ½ without paying a 10 percent penalty, on top of ordinary income tax.
But, the IRS grants an exemption for withdrawals used to pay for higher education expenses. You’ll still pay income tax, but you can avoid the additional 10 percent penalty.
Bear in mind that any money you take out of an IRA for educational purposes may affect your financial aid, since it is considered to be income.
Filing taxes as a student involves reporting all of your income to the government, just like a non-student filer.
Student filers have additional factors to consider.
You may be entitled to certain educational deductions or credits that can reduce your tax liability, or that of your parents if you are claimed as a dependent.
You may also be able to use scholarships or 529 college savings plans to pay for schooling without incurring additional taxes or penalties.
Since tax filing can be complicated, consider getting help. Many software programs are available. You may have access to free tax help at your college as well.
The goal of all tax planning is to pay the least amount of tax that is legally required of you. So, do your homework and learn about all the options available to you as a tax-filing student.