April: the month for locking down that internship, acing final exams, and yeah, figuring out your taxes.
And while we can’t study for you, or beef up that resume, we do have the goods on tax season. Read on if you’re unsure if you have to file or how to even begin the process. Don’t worry, we got you covered!
In this guide, we'll answer some of the most frequently asked questions you may have about taxes. We'll start with the basics, then cover more advanced topics like how your student loans and scholarships may impact your tax bill. We'll also help you determine your eligibility for tax credits to keep more money in your pocket.
What are taxes for college students?
As a college student, you've probably heard of taxes but haven't had to file since your parents claim you as a dependent on their tax return. The government (federal and state) uses taxes to finance government activities and projects such as maintaining roads, funding public schools, and social safety net programs.
Taxes come in a few different varieties, but the ones you should be familiar with are the following:
- Personal income tax: This is a tax you pay on any income you earn through wages, salaries, and investment income such as stocks or bonds. Personal income taxes in the U.S. are a "progressive tax," meaning the higher your income is, the more you pay in taxes.
- Payroll taxes: Payroll taxes, also known as "FICA" taxes, are an additional amount you pay on wages, salaries, or tips you earn. Payroll taxes are typically withheld from each paycheck and fund social programs like Social Security and Medicare.
Do I have to file taxes as a college student?
Mm, great question! And the answer is, it depends. Whether you have to file a tax return depends on your income and whether taxes are withheld from your paycheck. For example, students who earned more than $12,550 in 2021 must file a tax return.
How do you find out how much you earned? Every January, your employer will send you a "W2" form which contains details on all of the money you made throughout the year. If you want to determine your income before the end of the year, you can look at your most recent paystub where it says "year to date (YTD) gross pay."
If you have multiple jobs in one year, you will receive W2s from each employer. To file your taxes, you must add the income from all of your W2s to your tax return. For example, let's say you worked at a restaurant for six months and made $7,000. Additionally, you worked at a salon for a few months and made $3,000. In this case, your total reportable income is $10,000.
Some Exceptions (Did you have a side hustle?)
Though most of your income will likely be from W2 jobs, there are a few exceptions. If you made money from freelancing, investments, side hustles, or even gambling winnings, the income is reported on a 1099 form. If you earn less than $600 from one of these gigs, the employer is not required to send you a 1099. However, you are still responsible for reporting the amount on your tax return as self-employment income.
If you earned less than $12,550 in 2021, you might still want to consider filing your taxes to get any withheld taxes returned to you. You can check this information on your paystub under "taxes withheld." If you made under $12,550 as a student in 2021 and had taxes withheld from your paycheck, you will likely receive money back if you file your taxes.
Your next question might be when you should file your taxes. If your income exceeds the threshold, you must file your tax return in April of the following year. For example, the deadline to file and pay your 2021 taxes is April 19th, 2022.
Do you get a tax credit for being a student?
College students are eligible for several tax benefits such as:
- American Opportunity Tax Credit: The American Opportunity Tax Credit, or AOTC, is a tax credit of up to $2,500 per year for your first four years of college. Students must be enrolled at an accredited institution at least half or full-time to qualify.
- The Lifetime Learning Credit: The Lifetime Learning Credit is available beyond your first four years of college and is worth up to $2,000 per year. To receive the Lifetime Learning Credit, you must be working towards a degree or job training program at an accredited institution.
- Student Loan Interest Deduction: The tax benefit for student loan interest typically only comes into effect after you graduate and start repaying your student loans. You can deduct the cost of the student loan interest you pay, up to $2,500 a year.
What are common tax documents for students?
There are two key tax documents all tax students should be aware of.
- Form 1098-E: The 1098-E, also known as the Student Loan Interest Statement, shows the interest you pay on your student loans in any given year. Your loan servicer typically sends the form in January, and you will need it to claim the deduction.
- Form 1098-T: Your college must send a 1098-T form to any student who paid qualified educational expenses in the prior year, including tuition and mandatory course fees. This document helps determine your eligibility for student tax credits.
How do I do my taxes?
Yep, filing your taxes can be a bit intimidating. Thankfully, many low-cost tools are available to simplify the process, such as:
- Tax software: TaxSlayer, Free Tax USA, and TurboTax are user-friendly tax prep software that guides you through the filing process step-by-step. Best of all, they are free or low-cost tools.
- VITA sites: Volunteer Income Tax Assistance (VITA) sites are a free tax preparation service for people who make less than $58k a year. The income thresholds vary each year, so be sure to call ahead to make sure you qualify for this free tax filing service.
- On-campus services: Many colleges offer free tax preparation for their students. Try reaching out to your university's student services or counseling departments for more information.
How do my student loans, grants, and scholarships impact my taxes?
Another common tax question you may have is how your student loans, grants, and scholarships impact taxes. Here's what you should know:
- Student loans: If you're still in school and are using money from student loans to afford tuition, supplies, and living expenses, you don't need to pay taxes on it (since it's income that you must repay.) After you graduate and start making payments on your student loans, you might be able to deduct some of the interest you pay.
- Grants & Scholarships: Unlike student loans, your income from grants or scholarships is tax-free, with a few exceptions. For example, the award amount must not exceed the costs of your qualified education expenses — such as tuition and required course materials.
What are the consequences of not filing my taxes?
Not filing your taxes is not only illegal (if you meet the income
requirements), but can result in various consequences,
- Tax penalties and interest
- Collection actions
- Losing your tax refund
- Jail time (okay, this one is unlikely! but still scary)
As a college student, your taxes are probably pretty simple, and you won't owe much if anything if you do file. You may even get some money back as a tax refund. Even if you owe taxes, it's still better to file because flexible payment options are available.
Time to take action
Sure, figuring out your taxes may seem intimidating, but you've never been one to shy away from a challenge. (And literally—this isn't summiting K2: it's like, filling out some paperwork!) Plus, you might even walk away with some extra cash—the only way to know is to sort out your taxes and file your return.
Bottom line: You got this!
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