When you’re in college, taxes are probably one of the last things you think about. After all, why would you worry about taxes if you don’t have a full-time job, right?
Well, here’s the thing…
Even if you do not have substantial income to report, there may be tax credit or two that you could use and possibly qualify for a refund, which you can use as you like.
So, if you are a student and planning to file your tax return this year, be sure to keep these tax credits in mind to check if you qualify.
Also be sure to check out our guide which explains the difference between common tax terms including credits, deductions and adjustments so you understand some of the basics before you apply.
Do I need to file taxes while in college?
For all of us non-accountants, taxes are, well… confusing. As such, it’s only natural to wonder if you should be filing a tax return at all when you’re in college, especially if your parents are helping you financially.
Dmitry SergievA private tax advisor with over 10 years of experience in both the public and private sectors says the answer to this question is short and simple:
“You do not need to file a tax return if you are a student and do not receive any income.”
But if you have earned more than $12,550, the IRS will require you to file a return.
Similarly, some forms of financial assistance may also be treated as taxable income, including:
Scholarships, Grants and Scholarships
Scholarshipsgrants and scholarships are in high demand because they can help cover the costs of higher education and minimize the number student loans you have to take out to cover the cost of tuition.
According to the IRSthese forms of financial aid are not considered taxable income if you are a degree candidate and the money is used to pay for qualified educational expenses such as tuition, required fees, books, and equipment required for coursework.
But if the funds are used to pay for room and board or other living expenses while you are in school, you will have to pay income tax on any amount that was used to cover them.
Work-study
Although work-study work is a form of federal financial assistance, any income you receive through this program is taxable.
The good news, however, is that your school will withhold any applicable income tax from your salary. So you will most likely get that money back in the form of a tax return.
However, even if you didn’t earn much last year – or nothing at all – there are some tax credits that are available to eligible students that are worth checking out, as you may be eligible for a refund.
The best part?
You don’t have to do anything at all to get the money, just make sure you qualify and file your tax return either with tax software or tax professional who can better assess your situation.
Credits and deductions you can get as a college student this tax season
1. US tax credit for opportunities
The American Opportunity Tax Credit Is Education-Related $2,500 loan. This loan is only available to students during the first four years of post-secondary education at any accredited university, college or professional institution.
One great thing about an American Opportunity loan is that it is 40% repayable. This means you can receive a check for up to $1,000 if you don’t have to pay taxes.
Here’s how it works:
You get a loan for the first $2,000 you spend on qualifying education spending, including tuition fees, books, supplies and other study materials. You then receive a 25% credit on the next $2,000 you spend on qualifying education expenses, which is an additional $500.
Manny Vettimanaging member and co-founder taxFROMcertainlyHe speaks:
“If you spend at least $4,000 on qualifying educational expenses, your credit will be the full $2,500.”
To qualify for this loan, you must attend school at least part-time for at least one academic period.and you must be enrolled in a degree program.
In addition, your modified adjusted gross income must not exceed $80,000.if you are applying alone, or $160,000 if you are married if you are applying jointly.
You can also claim a partial credit if you earn more than $80,000 but less than $90,000 if you are applying alone, or if your income is more than $160,000 but less than $180,000 if you are married and applying documents together.
You can learn more about the US Opportunity Tax Credit and how to get it. here.
2. Lifelong learning loan
A lifetime student loan is another education-related tax credit that can help you lower your taxable income and result in a smaller tax bill.
However, unlike the US Opportunity Tax Credit, which is refundable, the Lifetime Student Credit is non-refundable.which means that if the loan is not used in full, you will not be refunded the remaining amount.
But don’t let that fool you. The fact that you will not receive a refund of the remaining amount does not mean that you should refuse this loan.
Sara Yorkregistered IRS agent and tax expert in custodian taxsays the best thing about a lifelong learning loan is that:
“Any cost associated with education – even continuing education courses – is acceptable, and there is no limit to the number of years you can qualify for this.”
In other words, you can use it after college if you attend classes at an accredited educational institution.
So how much can you claim?
York says the loan is 20% of the first $10,000 you spend on higher education expenses, with a maximum of $2,000.
To get a full loan (aka $2000) Your Modified Adjusted Gross Income must be less than $59,000 if you are filing alone or less than $118,000 if you are filing jointly.
You may also qualify for a partial loan if your amended adjusted gross income is between $59,000 and $65,000 if you are applying alone and between $118,000 and $138,000 if you are applying jointly.
Besides, you must have been enrolled in an eligible institution for at least one academic period, as determined by the school.
To learn more about Lifetime Student Loan, Click here.
3. Student loan interest deduction
If you are in collegeor even after college) as well as repayment of student loansyou may qualify for a student loan interest deduction.
More: 5 Ways to Pay Off Your Low Income Student Loan Debt
This deduction can help you reduce your taxable income by allowing you to deduct up to $2,500 in interest paid on your student loans during the year. You can also claim a one-time “loan origination fee” charged by your lender as part of the deduction.
To qualify for a student loan interest deductionyou must meet certain requirements, for example payment of interest on a commercial loan taken solely for educational purposes, and having a modified adjusted gross income of less than $85,000 if applying alone or $170,000 if applying with a spouse.
For more information on how this tax deduction works, see tax service website.
Limitations to consider
In an ideal world, you would be able to claim all three credits and deductibles when filing your tax return. But, unfortunately, this is not the case.
For the US Opportunity Tax Credit and the Lifetime Student Credit, you can only claim one of them per student during a given tax year. Thus, if you file taxes separately from your parents, you will have to choose which one is best for you.
If you’re unsure, it’s best to speak with a tax professional who can advise you on which of these options is best for you in terms of taxation.
In addition, if you received other tax-free forms of financial assistance, such as grants or scholarships, you will have to deduct the amount you received from your qualified education expenses before you can qualify for any of these loans.
Summary
There are several tax credits you can take advantage of as a college student, even if you didn’t earn any income last year.
At a minimum, you should examine each of the options above to see if you qualify, as they can indeed impact your budget by lowering your taxable income, increasing your refund, or both.
If you need help determining whether you qualify for any of the tax credits or credits listed above, be sure to check with an accountant or other tax professional, as they will be able to tell you what you may be eligible for. Your wallet will thank you.
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