Attending college is one of the biggest steps toward adulthood. Going to class, keeping up with homework, studying, holding down a job, and trying to make yourself marketable for a job after graduation are just some of the tasks you’ll need to juggle at the same time.
Beyond these responsibilities, however, you’ll also need to begin filing taxes as an adult. As a college student, filing taxes can be tricky and stressful, but taking advantage of education credits you’re eligible for can make it a more positive experience that includes a nice tax refund.
Before you file, check to see if your college offers any guidance on tax preparation. Some colleges may even offer professionals to file for you or assist you with any questions, all for free. If your college does not offer free tax assistance then using online tax software is another great solution that is simple and free for many students.
Recommended Online Tax Services for Students:
While filing taxes can be complicated, it’s also one area where you don’t want to rush. If you fly through your taxes without confirming you’re taking all available deductions, you could wind up paying more than you should. Beyond important deductions, it’s also crucial to know how filing taxes as a college student actually works. Here is what you need to know about filing taxes as a college student:
You’re away at school and you’re washing your own laundry, working at a job, and finally living on your own. You’re independent, right? While you may love your independence, you may still be considered a dependent.
Students and parents need to have a conversation to establish dependency status. If you’re a student and your parents are claiming you as a dependent, you aren’t eligible to claim deductions or credits yourself. So before you file, confirm whether or not your parents will be claiming you as a dependent on their taxes this year.
According to the IRS, your parents can claim you as a dependent until you are 19, but once you’re a student, that dependency status can be extended until you’re 24. If this is the case, you can still file taxes, but you need to indicate that someone else can claim you as a dependent on your tax return. And you can’t claim any credits or deductions your parents are already taking.
Tax Forms Needed
You might receive various tax documents and forms for filing a return. Depending on who is sending you these documents (e.g., past employers, your college, student loan lenders), you want to be sure they are arriving safely.
If you’re away at school, ask your parents to keep an eye out for any documents that get sent to your permanent address instead of to you at school. If possible, write a list of everyone who would send you a document. Contact these institutions to confirm your correct address, including spelling and apartment number, so they are sure to be sent to the correct place. Some of these forms and documents are available online.
- W-2: You’ll receive this from your employer; it contains any taxes that were withheld from your paycheck. If you don’t receive one, contact your employer to confirm the address.
- Form 1098-T: This is your tuition statement, which your college should provide. It will include information you’ll need to report to claim education credits – such as tuition paid, related expenses, any scholarships or grants you received, and any adjustments from last year. If you haven’t received this form, contact your school to request it. The IRS offers instructions for this form as well as an example.
- Form 8863: You’ll need this to see if you qualify for education credits, including the American Opportunity Credit and the Lifetime Learning Credit. Here is a .pdf version of Form 8863 with directions on how to complete it.
- Form 1098-E: You’ll need this to deduct any interest you paid on a qualified student loan during the tax year. If you paid more than $600 in interest, your lender should send you this form. IRS.gov provides an example of this form and directions on how to claim this deduction.
Claiming Education Tax Credits
American Opportunity Credit
You can claim this tax credit if you’re an undergraduate and have not completed the first four years of postsecondary education as of the beginning of the year. You’ll need to be in a program at a recognized postsecondary educational institution working toward a degree or certificate. According to IRS.gov, you need to have at least half the full-time workload for at least one of your academic periods. Also, you don’t qualify if you’ve been convicted of a felony drug offense.
This credit is a modified version of the Hope Credit. The updated version allows required course materials (books, supplies, and equipment) as qualifying expenses, allows the credit to be claimed for four years instead of two, and broadens the range to include taxpayers with higher incomes.
This would allow a maximum annual credit of $2,500 of the cost of tuition, fees, and course materials paid during the taxable year for each student. According to IRS.gov, the credit is 40% refundable (up to $1,000), which means you’d get money back even if you don’t owe taxes.
You’re eligible to claim this credit if your modified adjusted gross income is $80,000 or less, or $160,000 or less if you’re filing jointly.
Lifetime Learning Credit
The Lifetime Learning Credit allows you to claim a credit of up to $2,000 on qualified education expenses. Unlike the American Opportunity Credit, this is nonrefundable. So you won’t get money returned to you, but it can reduce what you owe.
Unlike American Opportunity, the Lifetime Learning Credit is good for postsecondary education and any courses to acquire or improve job skills. Plus, a felony drug conviction doesn’t make you ineligible.
You’re eligible for this credit if you’ve paid for qualified education expenses, and you’re considered an eligible student. For this credit, you can’t earn more than a modified adjusted gross income of $130,000 if you’re married and filing jointly or $65,000 if you’re single, head of household, or a qualifying widow(er).
You aren’t eligible for this credit if you’re a dependent or you’re married filing separately.
You can’t claim both the Lifetime Learning and American Opportunity credits. You also can’t claim one of these credits along with deducting your tuition and fees.
There’s no limit to the number of years you can claim this credit, unlike the American Opportunity Credit, which doesn’t allow you to take the credit on the same student for more than four years.
Deducting Higher Education Expenses
You (or your parents) can deduct up to $4,000 of qualified college costs, including tuition and other qualified expenses. This deduction will reduce your taxable income, according to the IRS.
Keep in mind that you can’t claim a tuition-and-fees deduction and an education credit in the same year for the same student.
If you are still claimed as a dependent, you can’t claim the credit. So if your parents are claiming this credit and claiming you as a dependent, you don’t qualify.
What Are These Qualified Education Expenses?
The expenses must either include costs that you paid during the academic year that were also in the same taxable year or in the academic period that begins in the first three months of the following tax year.
The following costs are considered qualified expenses for education tax credits:
- Tuition fees for attendance
- Required fees for enrollment
- Required course materials including books, supplies, or equipment
For purposes of the education tax credits, the following are not considered qualified expenses:
- Any expenses you’re already reporting for another tax deduction, credit, or educational benefit
- Any item that was paid for with tax-free educational assistance
- Transportation to and from college
- Cost of living, including rent, utilities, the cost of a dorm room, and food
- Any health insurance costs or medical expenses you might have incurred
- Any fees that are not required as a “condition of enrollment or attendance” (i.e., the class is required)
- Items that aren’t required by your college, such as a new computer
Deducting Your Student Loan Interest
Another tax benefit you could explore is being eligible to deduct the interest you pay on a qualified student loan. You can deduct up to $2,500 in interest, and it’s claimed as an adjustment to your income. A qualified student loan is a “loan you took out solely to pay qualified higher education expenses,” according to the IRS.
To qualify for this deduction, you’ll need:
- To have paid interest on a qualified student loan in the tax year in which you’re filing
- Not married filing separately
- Not to be claimed as a dependent
- To be legally required to pay interest on that loan
Form 1098-E should be provided for you by your lender. They may mail you a paper copy of this form, but many lenders also allow you to access your form online by signing into your account. If you have trouble accessing your form, contact your loan lender.
Scholarships and Your Taxes
Looking for scholarships and grants should be on every current and prospective college student’s mind. But what happens at tax time? Here’s what you need to know:
Your scholarships, grants, and fellowships are considered tax-free only if you are using the entire amount to pay for tuition, required fees for enrollment, and any books, supplies, and equipment required by your college.
If you used a portion of that scholarship for living expenses, you’ll need to claim that as part of your income. For example, say you received a $5,000 scholarship. You use $2,500 to pay tuition, and the other $2,500 to pay rent and for food. You’ll need to report that $2,500 you used for rent and food as taxable income on Form 1040.
The IRS offers more information on scholarships, grants, and fellowships and taxes.
Income and Your Taxes
You might not need to file a tax return if your income is not above a certain amount depending on your filing status. (Check out the IRS’ questionnaire on whether or not you are required to file a tax return.)
If you worked during the past tax year, you should file a 1040 or 1040A tax form. Filing Form 1040EZ means you can’t claim any education credits. However, Bankrate explains explains that if you had any money withheld from your paycheck, you’ll be getting a refund. Plus, you may qualify for credits.
Out-of-state students might have earned income in two states. If you are working at school, but maintain a job at home during summer or holiday breaks, you’ll need to file a tax return in both states.
Editorial Note: Compensation does not influence our rankings and recommendations. However, we may earn a commission on sales from the companies featured in this post. To view a list of partners, click here. Opinions expressed here are the author's alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser's page for terms & conditions.