When you’re in college, taxes are probably one of the last things on your mind. After all, why would you have to worry about taxes if you don’t have a full-blown job, right?
Well, here’s the thing…
Even if you don’t have any substantial income to report, there may be a tax break or two you could take advantage, and possibly qualify for a refund, which you can use however you like.
So, if you’re a student and considering filing your taxes this year, be sure to keep these tax benefits in mind, to see if you qualify.
Also, be sure to check out our guide which explains the difference between common tax terms, including credits, deductions, and adjustments, so you understand some of the basics before you file.
Do you need to file taxes while you’re in college?
For all of us, non-accountants, taxes are, well… confusing. So, it’s only natural to wonder if you should even be filing a tax return when you’re a college student, especially if your parents are helping you financially.
Dmytro Serhiiev, a self-employed tax consultant with over 10 years of experience working in both the public and private sectors, says that the answer to this question is short and simple:
“You don’t have to file a tax return if you are a student and don’t earn any income.”
But if you earned more than $12,550, the IRS requires you to file a return.
Likewise, some forms of financial aid can also be considered as taxable income, these include:
Scholarships, grants, and fellowships
Scholarships, grants, and fellowships are highly sought-after because they can help fund the cost of higher education, and minimize the number of student loans you have to take out to cover your educational expenses.
According to the IRS, these forms of financial aid do not count as taxable income, as long as you are a degree candidate, and the money is used to pay for qualified education expenses, like tuition, required fees, books, and equipment required for coursework.
But if the funds are used to pay for room and board or other living expenses while you are in school, then you will have to pay income tax on any amount that was used to cover these.
Even though work-study jobs are a form of federal financial aid, any income you generate through this program is subject to taxes.
The good news, however, is that your school will withhold any applicable income tax from your paychecks. So you most likely will get that money back in the form of a tax return.
Still, even if you didn’t earn much last year — or nothing at all — there are some tax breaks that are available to eligible students, which are worth checking out, as you could get a refund.
The best part?
You don’t have to do anything at all to get the money, just make sure you meet the requirements and file your taxes either with the help of tax software or a tax professional that can better assess your situation.
Credits and deductions you can take as a college student this tax season
1. The American Opportunity Tax Credit
The American Opportunity Tax Credit is an education-related credit worth $2,500. This credit is only available to students during their first four years of post-secondary education, at any accredited university, college, or vocational institution.
One great thing about the American Opportunity credit is that 40% of it is refundable. That means that you can get a check of up to $1,000 if you don’t owe any taxes.
Here’s how it works:
You get credit on the first $2,000 you spend on qualifying education expenses, including, tuition and fees, books, supplies, and other course materials. Then you get a credit of 25% for the next $2,000 you spend on qualifying education expenses, which comes out to an additional $500.
Manny Vetti, managing member and co-founder at TaxCure, says:
“If you spend at least $4,000 on qualifying educational expenses, your credit will be the full $2,500.”
To receive this credit, you must be attending school at least part-time for a minimum of one academic period, and you must be enrolled in a degree-seeking program.
Additionally, your modified adjusted gross income must not exceed $80,000, if filing single, or $160,000 if you’re married, filing jointly.
You can also claim partial credit if you earn over $80,000 but less than $90,000, if filing single, or if your income is over $160,000 but less than $180,000, if you’re married and filing jointly.
You can learn more about the American Opportunity Tax Credit and how to claim it here.
2. The Lifetime Learning Credit
The Lifetime Learning Credit is another education-related tax benefit that can help you lower your taxable income, and lead to a smaller tax bill.
However, unlike the American Opportunity Tax Credit, which is refundable, the Lifetime Learning Credit isn’t, meaning that if the credit isn’t used in full, you won’t get refunded for any remaining amount.
But don’t let that fool you. Just because you won’t get a refund on any leftover amount, that doesn’t mean that you should pass up on this credit.
Sarah York, an IRS enrolled agent and tax expert at Keeper Tax, says that the best thing about the lifetime learning credit is that:
“any education-related costs — even professional development courses — are eligible, and there’s no limit on the number of years you can claim it.”
In other words, you can take advantage of it beyond your college years, as long as you’re taking classes at an accredited institution.
So, how much can you claim?
York says that the credit is 20% of the first $10,000 you spend on higher education expenses, with the maximum amount being $2,000.
To claim the full credit (aka $2,000) your modified adjusted gross income must be less than $59,000 if filing single, or under $118,000 for joint filers.
You can also claim a partial credit if you’re modified adjusted gross income is between $59,000 and $65,000, if filing single, and between $118,000 and $138,000, for joint filers.
Besides that, you must be enrolled at an eligible educational institution for at least one academic period, as determined by the school.
To learn more about the lifetime learning credit, click here.
3. Student Loan Interest Deduction
If you are in college (or even post-college) and paying off student loans, you may qualify for a student loan interest deduction.
This deduction can help you lower your taxable income by allowing you to deduct up to $2,500 on interest paid on your student loans throughout the year. You can also claim the one-time “loan origination fee” charged by your lender as part of the deduction.
To qualify for the student loan interest deduction, you must meet certain requirements, like paying interest on a commercial loan taken out solely for educational purposes, and having a modified adjusted gross income of less than $85,000 if filing single, or $170,000 if filing jointly with your spouse.
For more details on how this tax deduction works, check out the IRS website.
Limitations to consider
In an ideal world, you’d be able to claim all three credits and deductions when you file your tax return. But, sadly, that isn’t the case.
When it comes to the American Opportunity Tax Credit, and the Lifetime Learning Credit you can only claim one of them per student within a given tax year. So, if you’re filing your taxes separately from your parents, you’d have to choose which one is the best choice for you.
If you’re unsure, then the best course of action is to talk to a tax professional that can advise you in regards to which of these options is more convenient for you, tax-wise.
Additionally, if you received other forms of financial aid that were tax-free, such as grants or scholarships, you’ll have to deduct the amount you received from your qualified education expenses before you can claim either of these credits.
There are a few tax breaks you can take advantage of as a college student — even if you didn’t earn any income last year.
At minimum, you should look into each of the options listed above to see if you qualify, as they could really make a difference in your budget by lowering your taxable income, increasing the amount of your refund, or both.
If you need any help determining whether you can benefit from any of the tax credits or tax deductions listed above, make sure you consult with an accountant or another tax professional, as they’ll be able to tell you what you may be eligible for. Your wallet will thank you.
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