- / Tax Planning for Students
College Student’s Guide to Taxes
To File or Not to File, That’s the Question
Don’t read this unless:
You are a busy college student with no time to dig through the IRS voodoo in vain attempts to determine your tax situation;
You still are unsure whether you’re required to file a federal tax return;
You want to know how to get your taxes done ASAP and on the cheap, PLUS learn a few tricks for discounting the bottom line.
Here’s the busy student’s blueprint for getting taxes done, or not done, before April 15.
Step 1: Determine your need to file a federal income tax return.
Step 2: Learn about the various tax benefits available to college students and/or parents.
Step 3: Find low- or no-cost tax preparation assistance.
Taxes are typically the last thing a college student wants to worry about. However, the better strategy is to find out ASAP how you are affected in the tax ecosystem, if you have any conditions under which you must file, and what counts as taxable compensation.
STEP 1: Are you required to file a federal income tax form this year?
The answers to common questions like these help determine if you must file federal and state taxes.
- Do you receive scholarship money?
- Do you receive Pell Grant funds?
- Are you a degree-seeking student?
- Did you work “under the table” during the current tax year?
- Did you earn income at a job, as a consultant, as a freelancer, anything?
- Are you an international student here on a visa?
File your federal taxes for any of the following cases:
- You earned wages or a salary for the current tax year
- You earned tips
- You earned “under the table” job payment or self-employment income that exceeds $400
- You earned dividends from stocks and other investments
- Earned interest from checking or savings accounts
- Used scholarship, fellowship, and/or federal grant funds to pay for expenses other than tuition and required books
- You are a non-resident or international student here on a visa.
Wages, salary, tips and other income, formal or “under-the-table,” you should know about. Whether you have a detailed accounting of these wages is another topic, but you know when someone’s paid you for work or service.
If you have stocks, bonds or other investments that earn dividends you will automatically receive a tax form in the mail from the company that manages those funds. The same holds true for a checking or savings account that earns interest—your bank will send you a tax form to include with your federal taxes. Envelopes from these entities marked “Tax Documents” will show up in your U.S. mail sometime during the end of January or the first part of February. File them with any other tax information you’ve saved.
Confusion enters the picture when your “income” is complicated by scholarship, fellowship or federal grant money, such as the Pell Grant. Do you pay income taxes on any of these? The general rule of thumb is this: if you are a degree-seeking student and your scholarship, fellowship, or federal grant dough was used to pay for tuition, to buy required books and purchase other required materials, you do not pay taxes on those funds—they are non-taxable items. Read closely: keywords are “degree-seeking” and “required” books and materials. Tuition does not mean cost of attendance, either. If you paid for a dorm room and a meal plan and/or transportation and used scholarship or fellowship or grant money then that portion of your gift aid is taxable. You should report any taxable portion of these funds on a federal tax form.
If, after considering all of the above, you are still befuddled as to whether you are required to file a federal tax return, seek further tax preparation assistance.
STEP 2: Tax Credits, Benefits, and Deductions for College Students and Parents: Slash the Bottom Line
Step 1, completed—you should have already figured out if you are required to file a federal income tax form. In Step 2 you’ll learn about the various income tax benefits available to you or to your parents, in the case that you are a dependent on their tax return. Here are federal tax programs—money-- you or your parents may be permitted to slash from your total earned income and taxable bottom line.
Lifetime Learning Credit lets you deduct up to $2,000 for your education if you pay your tuition and other “educational expenses.” If you’re a dependent on your parents’ taxes then they have the good fortune to deduct the LLC. This credit is deductible on every tax return for a tax year in which you paid toward a degree at a college or university, or paid toward non-degree courses for career or professional purposes.
- The Hope Credit is available as a deduction for the first two years of post-secondary education. Students must be degree-seeking: certificate, Associates, Bachelors. If, as an individual, you earned over $58,000 in modified adjusted gross income (MAGI) you are disqualified from the Hope Credit.
- The Tuition and Fees Deduction is an alternative to the Lifetime Learning Credit and Hope Credit. Filers whose earned income is over the limit for the LLC or the Hope, but less than $80,000 (MAGI) may opt to deduct the $4,000 available with the Tuition Deduction.
- Coming up for the 2009 and beyond tax years is the new American Opportunity Tax Credit. This education credit is one small part of President Obama’s massive stimulus bundle: The American Recovery and Reinvestment Act of 2009. Deduct $2500 from your total earned income, if you’re an individual with MAGI up to $80,000 and married/joint up to $160,000 MAGI. The real benefit to this newest tax credit is that you can earn over the maximum and still be qualified for part of the deduction.
- Tax Treaties for international students offer reductions in taxable income depending upon your country of origin. Your international office should have a tax treaty chart on which you can find how much of your earned income is tax-exempt, plus any restrictions.
STEP 3: Finding Low- or No-Cost Tax Prep Assistance
Step 1 – you’ve determined your eligibility for filing a federal tax return; Step 2 you learned about the various education credits that allow you or your parents to save thousands on taxes for the year; in Step 3 you have a list of useful sources for affordable or free tax preparation assistance.
Possible Resources for Tax Assistance and Preparation
- College Career Services offices for tax guidance or prep assistance
- Campus International Office (for international students)
- Fraternities/Sororities that offer volunteer prep assistance
- Campus tax workshops and seminars
- Local IRS Volunteer Income Tax Assistance * (your campus may have IRS VITA volunteers)
- Local small tax accountants (could get tax prep for under $100)
- Do-it-yourself with tax prep software such as Turbo Tax
- Your state’s department of revenue may offer free e-filing through partnerships with a number of popular tax prep software companies. Most common is Turbo Tax Intuit Tax Freedom Project.
- IRS’s Free File Alliance gives you access to 19 different e-file tax prep companies that allow you to use their software for free. Most have restrictions on gross earned income.
Field Guide to the Most Common Federal Wage and Tax Statements and Forms
Here is a short list of the most common IRS income tax and wage forms you’ll encounter as a student:
- W-2 is the wage and tax statement you receive from an employer
- 1042-S is a wage statement for non-resident or international students for any earned income, taxable or non-taxable
- 1099-MISC is the tax statement for Miscellaneous Income (contract or freelance pay, tips, other untaxed income)
- 1099-DIV for Dividends is the tax statement you’ll receive from a financial management company that may manage any stocks, bonds, or other investments you have.
- 1099-INT for Interest is the tax statement you’ll receive from your bank which shows the amount of interest earned for the current tax year.
- 1040-EZ is perhaps the most popular IRS federal tax filing form. This is the easiest, uncomplicated IRS form and recommended for U.S. students filing individually and without complexities.
- 1040NR-EZ is another easy and uncomplicated federal tax filing form, but exclusive to international or non-resident (NR) students that have earned income.
- 8843 is the federal tax form used by all international students, or non-resident aliens, with or without earned income.
- 1040 is the full version of the federal tax form, commonly used if you have any types of itemized deductions.
* IRS Volunteer Income Tax Assistance organization
IRS Education Guidelines