As a college student, entering the "real world" comes with a long list of responsibilities. Studying, interning, and, oh yeah, paying taxes! They’re all necessary aspects of being a student, but not all students have to take care of the taxes part.
Learning how to manage and file taxes as a college student requires that you first understand whether or not you even have to file. As a college student and a recent graduate, you may qualify to file your taxes for free. You might also qualify as a dependent, which means your parents or guardian will claim you and file for you.
If nobody is claiming you as a dependent and you have to file taxes yourself, you’ll find that there are a few student tax breaks that you’ll want to know about to help offset the costs of college. Determining which education credits you qualify for and what kinds of education expenses you can deduct will help you lower your bill if you do have to file. Here’s how...
Do College Students Need to File Taxes?
That’s a good question! First, we recommend that you talk with your parents. This will help everybody understand who is claiming who on their tax return this year. Ask them if they’ll be claiming you as a dependent and what that might mean in terms of you getting any sort of refund.
According to the IRS, the deadline to file a 2020 federal income tax return is April 15th, 2021. If you owe taxes or are required to file, you will need to file before this date to ensure that you don’t acquire any fines or penalties.
Bill Smith, Managing Director of the CBIZ MHM National Tax Office, says that the penalty for not filing costs 5% of your unpaid taxes for each month your tax return is late and goes up to 25% (this penalty takes effect the day after the tax deadline ends).
Now that you know you might need to file, let’s take a look at whether you’re a dependent. Again, your parents or legal guardians likely know the answer to this, but here’s the official breakdown from the IRS as to what qualifies as being a dependent:
- You’re under the age of 19 at the end of the relative fiscal year or under 24 at the end of the year and a student.
- You live with your parents for more than half the year.
- You don’t provide more than half of your own support during the year.
If you are a dependent, you may still need to file a return based on your income. For the tax year 2020, you must file a return if:
- Your unearned income was more than $1,100 (this comes from investments, estates, etc.).
- Your earned income was more than $12,200.
- Your gross income was more than $1,100 or your earned income (up to $11,850) plus $350.
If you are below these income ranges, you technically don’t have to file a tax return. But if you want to be on the safe side and you also want to start learning how to file taxes as a college student, it’s a good idea to go ahead and file. In fact, ask your parents or a friend to help you go through the process for the first time; it’ll help a lot.
Are Your Scholarships Tax-Free?
Most of the time, yes. It depends on the nature of the scholarship or grant, however. It also depends on how you used the money. Most scholarships and grants are tax-free, but if you used the money to pay for optional educational equipment, travel, or other non-educational purposes, you might be required to pay taxes on those amounts.
Work-study situations are a little different, however. Federal work-study programs pay you as if you’re a full-time, regular worker. This means that you’ll have to pay taxes on that income. However, work-study programs and the income you receive from them don’t affect your federal student aid.
How to File Taxes as a College Student
There’s no denying that filing taxes is a headache full of confusion and frustration. We totally get it. So, we’ll try to break it down as easy as possible.
For most college students, the standard Form 1040 is the only form you’ll need to complete. If you earned income from a company, you’d receive a statement of that in the form of a W2; if you earned income as a freelancer, you’d receive a statement of those earnings in the form of a 1099.
In the specific case of a college student, the 1040 form will be used to report your income for the year along with any tax deductions or credits you plan to claim.
Generally, you’ll be required to simply fill out your earnings, make a few notes for deductions, and that’s it! However, looking at the form can be overwhelming. Because of this, we’d suggest filing your taxes for free with the IRS Free File tool. Or try FreeTaxUSA.
What about deductions for college students? Deductions and credits are used to help you reduce your overall tax bill. For example, if your income for 2020 was $15,000, you’ll have to pay taxes on the entire $15,000 amount. However, if you’re eligible to claim deductions or education credits, you can lower that amount, thereby also lowering the amount of taxes you’ll pay in the end.
Also, if you have a student loan or pay your education costs out of pocket, you may be eligible for the following deductions and credits:
- American Opportunity Credit (click here for requirements)
- Lifetime Learning Credit (click here for requirements)
- Deduction of tuition and fees
- Deduction of student loan interest
Important Note: Claiming any of these tax benefits depends on your status as a dependent.
Preparing to File Taxes as a Student
Filing taxes as a student for the first time in 2021? Don’t let it overwhelm you. Simply:
- Ask your parents if they plan on claiming you as a dependent.
- If not, you will need to figure out whether or not you’re required to file based on your income.
- Gather your tax documents (likely a W2 or 1099) and figure out how much you earned in 2020.
- Take a look at the deductions and credits above to see if you qualify.
- Use a free tax tool like the IRS Free File tool to file for free. They’ll also walk you through the process step-by-step.
We promise that it’ll get easier! In the meantime, consider focusing on saving more this year so that, come Tax Day 2022, you have savings in the instance that you owe money and need to pay the government.
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