The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
When filing taxes as a college student, make sure you determine your dependency status, calculate your income, compile your student tax forms and claim any education tax credits or deductions.
If you are a new college student, the thought of filing your own taxes may seem like an overwhelming prospect. Whether you’re applying for your first credit card, taking out student loans or, in this case, filing your taxes for the first time, these are all important financial life events that we experience as we enter adulthood.
In this article, we’ll discuss when to know if you need to file taxes, whether or not your parents can claim you on their taxes and tips for filing your taxes as a college student.
Do students have to file a tax return?
This depends on whether or not a student earned an income the previous year, and if so, how much they made. If you’re single and your earned income was less than $12,400 or you had less than $1,100 of unearned income in 2020, you are not required to file a return.
However, if you had income tax withheld on your paychecks, you may want to consider filing. For example, let’s say you only made $10,000 during the year, but you had federal income tax withheld on your paycheck. In this case, you’ll benefit from filing a tax return because you may have money owed to you. Make sure to check your pay stubs to determine if you had these income withholdings.
You’ll likely be classified as an employee for most jobs, but it’s important to know if you’re classified as an independent contractor. If you’ve had freelance jobs during your college career, for example, you’re likely classified as an independent contractor, in which case taxes are not withheld from your paycheck.
Can parents claim you on taxes?
Yes. Parents can still claim their child while the child is a full-time student until the age of 24. If you’re a working student, your parents must still provide more than half of your financial support for you to be eligible as a dependent.
According to the IRS, a parent can claim their child as a dependent if:
- The child is under 19 years old at the end of the year or under 24 years old and a student at the end of the year
- The child lived with the parent for more than half of the year
- The parent provided more than half of the child’s financial support during the year—like food, clothing, education and housing
If you’re a parent and meet the above criteria to claim your child as a dependent, you may be eligible for education tax credits.
How do college students file taxes?
The process of filing your taxes initially seems scary, especially if it’s your first time. But once you have all of the correct information and necessary documentation, the process should be pretty straightforward. As a college student filing a tax return, you’ll be using the standard Form 1040, which reports your filing status, yearly income and any credits or deductions you plan to claim.
Below we’ve outlined the important steps you’ll need to take to file your tax return:
Determine your dependency status
The most important thing you need to know as a student is whether or not your parents are still claiming you as a dependent. Remember, if your earned income was over $12,400 during the year, you should file a tax return. If your income was below that level, you can still file a return if you had taxes withheld from your paycheck, but it’s not required.
For tax purposes, it may be smarter for your parents to claim you as a dependent while you’re in college as the tax benefits may be higher for them. If their income level is too high to qualify for educational tax credits, then you may want to consider filing your own tax return.
Calculate your income
Once you know your dependency status, you’ll want to be aware of the amount of income you earned for the tax year. You will receive a Form W-2 from any of your employers, which will display the amount of income you earned.
If you’ve received scholarships or grants to help cover the costs of tuition and other qualified education expenses, these are considered tax-free in most cases. But, if you used a portion of your scholarship funds for incidental expenses, such as housing, you will have to claim the amount used toward those expenses as a part of your income.
Compile your student tax forms
There are many important tax documents that students need to be aware of, as these documents will help you file your tax return smoothly. Below is a list of all of the tax forms you may need to file and what each form is used for:
- Form W-2: You’ll receive this form from your employer, and it will contain your income and any taxes that were withheld.
- Form 1099: If you did freelance work and were classified as an independent contractor, you should receive a Form 1099, which will contain your income amount. Be aware that since taxes were not withheld from this income, you may end up owing money after filing your taxes.
- Form 1098-T: Your school will send you a form 1098-T, which you’ll need if you are claiming education tax credits. This form will include information on your educational expenses, such as tuition and any scholarships you received.
- Form 1098-E: If you or your parents have started making student loan payments, your loan provider will send you Form 1098-E, with which you’ll be able to deduct some or all of the interest paid on qualifying student loans during the previous tax year.
- Form 8863: You will need this form when filing if you’re looking to qualify for education tax credits such as the American opportunity credit or the lifetime learning credit.
Claiming education tax credits and deductions
There are two tax education credits available to claim on your tax return—the American opportunity credit and lifetime learning credit. The IRS states that in order to claim an education tax credit you must meet all three of the following criteria:
- You, your dependent or a third party pays for education expenses for higher education
- The eligible student is enrolled at an eligible educational institution
- The eligible student is you, your spouse or an individual you claim as a dependent on your tax return
American opportunity tax credit
The American opportunity tax credit (AOTC) is a credit that can be used to deduct qualified education expenses to students during the first four years of being enrolled in a higher education program. You can receive a maximum credit of $2,500 per year, and if the credit brings the amount of taxes you owe to zero, you are eligible to receive up to 40 percent ($1,000) of the remaining credit in the form of a tax refund.
To qualify, you must be attending a qualified educational institution, working toward a degree or other credential and be enrolled at least halftime for one academic period. You cannot claim the AOTC for more than four tax years and are not eligible if you’ve had a felony drug conviction.
To claim this tax credit, your modified adjusted gross income must be less than $90,000 if filing single or less than $180,000 if married filing jointly.
Lifetime learning credit
The lifetime learning credit (LLC) is a credit used for qualified tuition and related educational expenses paid for students enrolled in an eligible institution. Similar to the AOTC, the LLC allows you to claim up to $2,000, but it is nonrefundable. So unlike the AOTC, you will not be able to receive a portion of the credit back if it drops your taxes owed to zero.
This tax credit can be used during any year of higher education programs, not just the first four years. It can be used to help pay for undergraduate courses, graduate courses, professional degree courses and courses used to improve job skills.
To qualify for this credit you do not need to be pursuing a degree, but you must be enrolled or taking courses at an eligible institution. Your modified adjusted gross income must be less than $69,000 if filing single or less than $138,000 if married filing jointly.
Student loan interest deductions
Aside from these education tax credits, students are also eligible to deduct interest paid on qualified student loans. You can claim up to $2,500 in student loan interest, which will be deducted from your taxable income. To qualify for this deduction, you must have paid interest on a qualified student loan during the tax year and your modified adjusted gross income must be less than $80,000 if filing single or $160,000 if married filing jointly.
Ensuring you file your taxes properly and accurately is important in developing healthy financial habits throughout adulthood. Though filing taxes as a new college student can seem intimidating, following the tips provided in this guide can help make your process as smooth as possible.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.