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Tax guide for college students: How to file and tips and tricks

Here's the information you need to know to file your taxes for the first time and to do it right.
Written by Michael Rand, Contributing Writer

If you're a first-year college student, it's time to start thinking about how to file taxes for the first time, and if college tuition is tax-deductible. It can be challenging to navigate the US tax code while juggling your course load, a job, and student loans.

Some colleges have an office or student center with professionals who can help you with your taxes, although many don't. If you have such a resource, take advantage of it — these types of services can cost hundreds of dollars once you're out of school. Working with a tax professional at your school or elsewhere will also ensure you take advantage of any deductions and tax credits you might qualify for.

There are five steps to take to file taxes as a college student:

  • Learn your dependency status
  • Compile your tax forms
  • Claim tax credits
  • Claim higher education tax deductions
  • File your taxes

Dependency Status

While college is an opportunity to exercise your independence as an adult, you may still be considered a "dependent" for tax purposes.

You'll need to have a conversation with your parents or guardians to establish your 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.

Nonetheless, there could be advantages to remaining as a dependent for as long as you can while you're in college.

"Dependent students may want to have their parents claim them instead of claiming themselves.," said Walt Minnick, Financial Aid Specialist at Orange Coast College. "The tax benefits are usually higher for the parents than for the student, which can better benefit the family as a whole."

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. Furthermore, you can't claim any credits or deductions your parents are already claiming on their return.

Tax Forms

At the beginning of the new year, and before the April 18 tax filing deadline, you'll receive various tax documents and forms for filing a return. These forms may come from employers from the previous year, student loan lenders, your college, and any financial institution you maintain a retirement account with if you have one.

It's important to wait until all this paperwork arrives before you file taxes. If you file too early, there could be discrepancies in your taxes that you'll need to fix later.

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 1099: A 1099 tax form is a record that some entity or person other than your employer gave or paid you money. If you did any freelance or contract work to earn income but weren't formally employed, whoever paid you should send you this form. You are only required to use this form if you receive miscellaneous funds over $600 in the year.

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 an example 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 the American Opportunity Tax Credit if you're an undergraduate and have not completed the first four years of post-secondary education as of the beginning of the year. You'll need to be in a program at a recognized post-secondary 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 — like 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. 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 if you're considered an eligible student. For this credit, the amount of your Lifetime Learning Credit is gradually reduced and eventually phased out if your modified adjusted gross income (MAGI) is between $59,000 and $69,000 if you're single or between $118,000 and $138,000 if you're filing jointly. You cannot claim this credit if your MAGI is $69,000 filing independently or $138,000 filing jointly.

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

College tuition is no longer tax-deductible. Up until 2017, you could deduct up to $4,000 of qualified college costs, including tuition and other qualified expenses. But according to the IRS, "The tuition and fees deduction is not available for tax years after 2017."

Nevertheless, you can still claim applicable tax credits as listed above and you can deduct your student loan interest as you pay off your student loans after college.

Deducting Your Student Loan Interest

If you have 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 education expenses," according to the IRS.

To qualify for this deduction:

  • You must have paid interest on a qualified student loan in the tax year 2020
  • You're legally obligated to pay interest on your student loan
  • You aren't married but filing separately
  • Your MAGI is less than the specified amount (in this case, $90,000 single or $180,000 jointly)

If your MAGI is over $80,000, the deduction will phase out until it is eliminated at a MAGI of $90,000 if filing alone or $180,000 if filing jointly.

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, fees for enrollment, books, supplies and equipment required by your college.

If you used a portion of that scholarship for "incidental" expenses like room and board, 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 room and board. 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, 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. Use the IRS questionnaire on whether or not you are required to file a tax return.

If you worked during the past tax year, file a Form 1040 and a 1040 Schedule A. If you filled out the FAFSA for financial aid and worked a qualified job on campus as part of work-study, you'll receive a W-2 and report this on your taxes.

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. According to Minnick, "Out of state students will likely have to file three returns — for the host state, the home state, and federal taxes."

[This article was originally published on The Simple Dollar in March, 2020. It was updated in November, 2021.]

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