Our college years are often the stage of life where we first learn how to pay taxes. To be honest, it’s a bit of a nasty and complicated process. When students lack knowledge and don’t take their time, they can make mistakes and waste both time and money. And those who master their college student tax return can actually save money!
With this handy article written by our team, you’ll become a pro at filing your taxes and navigating the whole US tax system. There is also a bonus at the end, so let’s get started!
🎓 Student Taxes 101
Now that you’re ready to dive into the mysterious world of taxation, let’s start with the most basic step: understanding what tax is.
Essentially, taxes are mandatory payments the US government receives to provide free public goods and services that benefit the entire population. These include metro systems, buses, healthcare, academic grants, park benches, and much more.
You can try to imagine taxes as the toll we pay to maintain things that connect our society. Much like tolls help to fund the upkeep of highways and bridges, taxes support essential services responsible for our economy’s functioning.
Tax may seem like unnecessary spending, but it’s absolutely not! It has many important benefits that everyone can appreciate:
- Investment in research and development,
- Safety of citizens and national defense,
- Public healthcare services,
- Environmental initiatives, e.g., pollution control.
And that’s only scratching the surface!
Glossary of Terms
As you can see, taxes are easy to understand. Still, the system around them is a total mess. To start comprehending it, you should first learn about several important terms and make sure you understand them:
What Will Be Taxable & Tax-Free
You may think that as a student, you’re automatically exempt from tax. Unfortunately, that’s not how it works. If you receive earnings while at college, you must pay taxes just like any US citizen. Still, not everything you earn is taxable, and you may still have some things for which you don’t need to pay.
The earnings that require you to pay taxes are:
Everything you receive through a scholarship, fellowship grant, or other type of grant could be exempt from taxes if you fit the following criteria:
As you can see, taxes depend on what you spend the money on. This reflects the fundamental principle of taxation: contributions to public finances are directly linked to people’s economic activities. It means that those who benefit from public goods and services contribute their fair share in taxes. Earnings spent on essential things like textbooks are different, so they’re exempt from taxes.
If you have any amounts subject to tax, read on to learn how to file your taxes correctly.
What Happens if You Don’t File Taxes
“There are billions of people out there. Nobody would notice if I don’t pay my taxes.” Thoughts like this strike many students down. They think that if they avoid filing taxes, nothing will happen to them, and they will save some money.
Don’t make this mistake! The IRS has a giant network that gathers data about each and every penny earned in the USA. Should you avoid paying taxes, you’ll face nasty consequences that include:
All in all, it’s a terrible idea to avoid paying taxes. You’ll eventually lose much more money than any short-term savings. Besides, you’ll be breaking federal law.
Instead, follow our guide to learn how to file taxes correctly and even benefit from them!
🤔 Do You Need to File Taxes? Let’s Find Out
As you already know, being a student doesn’t exempt you from paying taxes. However, some aspects of the tax system can give you an upper hand and provide various benefits. Some things will let you pay fewer taxes, some will allow you to legally skip taxation, and some will even provide you with money you can spend however you like!
Let’s examine each of these aspects separately.
Your Filing Status
Your filing status is determined by whether you are married or have children. There are five different filing categories:
Your Income
Your income is a crucial factor that determines whether or not you need to file taxes. This system may seem complicated at first, but in truth, it’s pretty simple.
The IRS will take the standard deduction amount and compare it to your actual income. This means that you won’t need to file taxes if your earnings are lower than the standard deduction for your filing status. Check out the standard deduction rates for 2023 below:
Note that you might still be required to file taxes even if your income is below the standard deduction limit. This applies to the following situations:
Your Age
Your age is another crucial element in determining whether you must file student taxes. If your income exceeds the standard deduction amount for your filing status and you are under 65, you must file taxes. You can exceed a standard deduction and not file taxes if you’re over 65 or blind.
Your Dependency Status
Dependency status also impacts whether or not you should file taxes while you are a student. Also, the person who declares you as a dependant might be entitled to tax breaks and credits for education-related expenses, which is a nice bonus.
Here are some other vital aspects of dependency status:
- A person can be claimed as a dependant until they are 24.
- The child tax credit is worth up to $2,000 for each eligible dependant under the age of 17 for the 2023 tax year.
- The credit amount is reduced if you earn more than $400,000 (married couples filing jointly) or $200,000 (all other filers).
- Although the credit is nonrefundable, certain taxpayers who file in 2024 may qualify for a partial refund of up to $1,600 through the increased child tax credit.
What about International Students?
If you’re an international student, then this segment is for you. There are special laws that regulate the taxation of the income of foreigners temporarily residing in the United States, including students, trainees, scholars, teachers, researchers, or exchange visitors.
International students will have to file taxes if they have the following:
International students won’t have to file taxes if they have the following:
Remember that each student has their own unique status and tax requirements. Go ahead and determine yours according to the aspects we’ve described!
✍️ Student Tax Forms & How to File Them
Now we’ve come to the most important part of our article. Here, we will explain how to file your taxes and correctly fill out the required documents and forms. This task may seem intimidating initially, but don’t worry: we will help you figure it out!
The college student tax filing system has different forms that you’ll need to complete and send to the IRS. These documents may be obtained from your college, place of employment, student loan provider, or any other financial institution where you hold a retirement account. April 18 is the deadline to submit these forms to the IRS via e-mail or post. Now, let’s look at the papers you’ll need to file.
Form 8863
You need form 8863 to determine if you can receive education credits like the American Opportunity Tax Credit or the Lifetime Learning Credit. If you’ve never heard of them, here’s what they offer:
🇺🇸 American Opportunity Tax Credit (AOTC) can lower your tax burden by up to $2,500 per student.
⭐ Lifetime Learning Credit (LLC) can decrease your tax liability for the expense of attending a post-secondary institution by up to $2,000 for every tax return.
Sounds interesting? Getting one of these beauties is pretty easy. You must simply fit the specific parameters that we describe below.
Can You Claim an Education Credit?
To learn whether you can claim the American Opportunity Tax Credit, check out the table below:
And here are the criteria for the Lifetime Learning Credit:
Here are additional critical aspects that you should consider:
- You can choose only one educational credit for an academic year. You can’t pick both the American Opportunity Tax Credit and the Lifetime Learning Credit at the same time.
- Any college, university, or other post-secondary educational institution qualified to participate in a student aid program run by the US Department of Education can be considered an eligible institution. If you’re unsure about your college, you can ask them directly. They’re obliged to provide you with all the required information.
- Some educational institutions situated abroad also utilize the Federal Student Aid programs of the US Department of Education.
AOTC & LLC: Which Credit Should You Claim?
Both credits are great, but unfortunately, you can’t choose both. Let’s check out their advantages and possible drawbacks:
There is no universal strategy for choosing your first credit. Overall, the AOTC is considered a better option, and most people take it first. However, its criteria are very specific. That’s why if you don’t meet American Opportunity Tax Credit requirements, then go for Lifetime Learning Credit.
Claiming an Education Credit
So, you’ve checked that you’re eligible, calculated your MAGI, and are ready to grab your credit. Now, let’s learn how to actually obtain it. Just follow our guide below.
The first step is to calculate your MAGI correctly. Here’s how:
Now, you’re ready to claim your credit of choice!
🇺🇸 To get the AOTC:
- Obtain form 1098-T from an approved educational institution. Students can get this document from their school by January 31.
- Make sure the form 1098-T you received is accurate and correct.
- Contact your school if you think something is wrong.
- Remember to calculate your MAGI and check if you’re eligible.
- Finally, you must complete form 8863 and attach it to your tax return.
⭐ To claim the LLC:
- Get form 1098-T from an approved educational institution. It can be obtained from your school by January 31.
- Verify that the document you received is correct.
- If there’s a problem or you didn’t receive the form, contact your school immediately.
- Don’t forget to calculate your MAGI and check if you’re eligible.
- Fill out form 8863.
- Attach the completed form 8863 to form 1040 or form 1040-SR.
We recommend you preserve all copies of the documents you have used to prove your eligibility. The IRS can decline your request and state that your credit claim is incorrect and that you lack the supporting documentation to demonstrate your eligibility. In that case, you’ll have to send back all the money you’ve improperly received.
What Should You Do with Form 8863?
If you meet the required parameters for either AOTC or LLC, you can complete the two-page form 8863 and attach it to your tax filing. An online calculator will show you the sum you’ll be able to receive after providing your name and Social Security number. You’ll also need to ensure your MAGI doesn’t exceed the specified sum.
Make sure to fill out the form correctly according to the instructions! Otherwise, you won’t be able to claim the credit and receive tax benefits.
Form 1098-T
Completed form 8863? Great! Now, let’s examine the next document required for claiming the AOTC or LLC credit—form 1098-T.
1098-T is used to display your eligible qualified expenses, which is an amount paid for tuition, fees, and similar study-related services. Other things, like lodging, transportation, and comparable personal charges, are not eligible. Therefore, they won’t appear on your form 1098-T. Expenses for continuing classes that aren’t for academic credit might also not be considered eligible.
Will You Get This Form?
You’ll need to obtain form 1098-T from an approved educational institution to claim the AOTC and LLC credits. The school must report these forms to both you and the IRS.
However, there are some circumstances in which your college is exempt from submitting a 1098-T, including the following:
If you feel like there is a mistake and you were on the list to receive 1098-T, then reach out to your school and double-check their postal address. They will likely have your document.
What Does It Include?
Form 1098-T consists of 10 numbered boxes along with several fields for basic identifying information.
Here is what each box should contain:
What Should You Do with It?
If you received form 1098-T, have it available when you’re ready to complete your federal income tax return, calculate your MAGI, and apply for education credits.
Determine the credit you can claim by using the data on the 1098-T form. Check out the prerequisites to find out who is qualified to claim the education credits. Just be careful not to claim them twice by including your parents’ return alongside yours (if you file as a dependent.)
Form 1098-E
You’ve completed forms 1098-T and 8863, but there is a third document lying on your desk—1098-E. What is it for?
Well, anyone who spent at least $600 on a student loan will get a 1098-E from the loan servicing company. You can use this form to deduct money from your federal tax return.
Will You Get This Form?
A copy of 1098-E will be given to you by the organization to which you pay your student loans. You can get more than one 1098-E if you paid a federal loan servicer interest of $600 or more to multiple loan services during the tax year.
To determine whether you are fit to receive 1098-E, consider the following:
- If you paid interest of $600 or more, your existing federal loan servicer should send you a copy of your 1098-E. Your 1098-E may be delivered online or by US mail from your servicer.
- If you paid interest of $600 or more to each of your federal loan servicers, they will each provide you a copy of your 1098-E.
How Do You Get This Form?
The easiest way to get the 1098-E form is to ask your loan servicer. It’s also available for download on the website of your servicer.
Check StudentAid.gov and get all the information if you don’t know who your servicer is. You can also dial 1-800-433-3243 to contact the Federal Student Aid Information Center.
How to File This Form
You’re almost there! Now, you just need to complete the form and send it. But first, check out our handy guidelines that will help you fill out your 1098-E correctly:
Additional Student Tax Forms
Aside from the forms we’ve mentioned, you might come across some other documents. Let’s see what these are for.
Congratulations! You’ve conquered the tax forms! From now on, you will be okay knowing what to do with all the papers the IRS sends you. Hooray!
🎉 Important Benefits Related to Student Taxes
We’ve covered all the basics, so the boring part is over. Now that you’ve mastered the tax system, it’s time to make money off your taxes! In this next segment, we cover many exciting ideas and lifehacks to help you use the tax system to your benefit.
Tax Credits, Deductions, & Savings Plans
Did you know that taxpayers can lower their higher education costs through tax credits, deductions, and savings plans? Check this out:
You won’t owe income tax on the benefit you receive if it is excluded from your income, but you also won’t be able to claim it as a deduction or credit.
Qualified Tuition Programs
To help you save money for education-related fees, a state or school can give you a QTP/529 plan. This plan allows you to withdraw funds from your account to cover your educational costs while attending college or a career school without paying taxes. If you wish to use this benefit, educate yourself about state 529 schemes.
Extending Your Dependency Status
That’s not all of it—we have another beneficial option just for you! Would you believe that there can actually be an advantage to staying as a dependent while you’re in college?
Tax exemptions and credits are much more substantial for parents than students, making staying dependent a better option for the family. If you wish to use this strategy, note that you can officially remain dependent only until you become 19. However, you can prolong this status until you turn 24 if you start college. You would still be able to file taxes, but you must state on your tax return that another person claims you as a dependent.
Remember that if you plan on using this strategy, any credits or deductions your parents previously claimed on their tax return will be ineligible for you.
🚀 8 Best Tax Tips for Students
Want to handle your taxes even better? Check out our top tips to get you through your tax filing process:
1. Collect All Required Paperwork
Make sure you have all the required paperwork before submitting your taxes. This will help you save your time on preparations, and you will remember about all the forms when the time comes. The documents that you’ll need are:
- W-2 form from employment you had throughout the year.
- 1099 form for income from your workplace or freelance.
- Receipts for any tax-deductible expenses, such as books or computer equipment, as well as any paperwork relating to any scholarships or awards you may have earned over the course of the year.
- Your ITIN (individual taxpayer identification number) or Social Security number.
2. Don’t Forget about Due Dates
The tax filing deadline is in the middle of April. However, this date may change depending on the year and your particular situation. It’s critical to be aware of these deadlines and file your taxes on time. Try to give yourself some extra time to better prepare for the due date.
3. Seek Assistance if Necessary
If you need help comprehending the filing specifics, try asking for assistance. The Volunteer Income Tax Assistance, among other tools provided by the IRS, can help you should you have any questions. Additionally, a lot of colleges offer students free tax preparation services. Trust us, seeking help is much better than suffering the consequences of an incorrectly filed tax form.
4. Keep Copies of Tax-Related Documents
We advise you to keep copies of all tax-related paperwork, such as your tax return, W-2 forms, and any receipts for credits or deductions. Keeping meticulous records might make filing taxes in the future a lot easier. Also, it’s a great idea to keep all of your invoices for supplies, equipment, and books. You can later use those for deductions and tax-exempts.
5. Familiarize Yourself with Tax-Exempt Income
Learn about possible tax repercussions of stipends, fellowships, grants, and scholarships. It’ll allow you to save money from tax-exempted programs to pay for tuition or cover your other expenses. If you want to maximize your tax-exempt income, ask your university to eliminate the requirement that your stipend be used for room and board.
6. Keep Records of School Expenses
We recommend you keep an accurate record of every penny you spend on study needs to guarantee that you don’t lose out on any educational credits or deductions. This practice not only ensures that you’re accurately reflecting your educational expenses but also empowers you to capitalize on the financial benefits you’re entitled to.
7. Fill Out Your Taxes Even if You Don’t Need To
This will definitely give you an upper hand if you file your tax return even when you don’t have to. There’s always a possibility that you will become eligible for tax credits and refunds. In addition, it’s wise to start learning how to fill them out as early as possible, as this is a necessary lifelong skill.
8. Try Using Tax Software
For a college student, tax filing process may seem daunting, especially the first time. Online software can significantly simplify the process of filing taxes and ensure you don’t overlook any credits or deductions. We’ve collected some of the best tools and resources that will be a massive help to any student starting their tax journey. Check them out below!
🎁 BONUS: Helpful Tax Resources for Students
If you want to truly master the tax system, you’ll definitely benefit from informative resources and apps at your disposal. Use them to simplify the tax filing process and save you time!
We hope you’ve enjoyed our guidelines and tips. The tax system and the process of filing your taxes may seem complicated initially, but once you get the hang of it, it’s a piece of cake. Use this article to use tax to your advantage, and have fun!