Paying taxes can be complicated, but it’s a part of life for adults. Before you panic about your new obligations to the IRS, read on to find answers to some of the most frequently asked tax questions that students have.
Have a specific question in mind? Jump to a section by clicking an option below:
- Do I Have to File Taxes?
- Am I Considered a Dependent?
- What Types of Documents Do I Need to File Taxes?
- How Much Will Filing My Taxes Cost Me?
- Will I Qualify for Any Tax Credits?
- Can I File My Taxes Online?
- Do I Have to Work with a Tax Agent?
- Do I Have to Claim Financial Aid Money as Income?
- Is Income Earned from Work Study Taxed?
- What Tax Issues Do Self-Employed Students Face?
- How Do Your Student Loans Affect Your Federal Income Taxes?
Question 1: Do I Have to File Taxes?
Whether you must pay taxes or not will depend upon the amount of taxable income you make and your filing status. In 2018, for example, you’ll typically need to file a tax return if you make at least $12,000 in gross income, you’re single, and you’re under 65.
The income thresholds at which you must file taxes change periodically, so check the threshold for the current tax year. The IRS also has a handy tool you can use to input your personal information in order to determine if you must file a return.
You may need to do some tax preparation and file a tax return in some circumstances, even if your parents claim you as a dependent on their return. And even if you’re not required to file taxes, you may wish to do so in order to claim refunds or credits such as education tax credits you’re entitled to.
If you worked and had federal taxes withheld from your paycheck, failing to claim a refund could mean the IRS gets to keep the money you didn’t owe. Filing online is easy and is typically free if your income is below a certain threshold, so there’s no reason not to file if you may be owed money.
Question 2: Am I Considered a Dependent?
If you’re considered a dependent, your parents can claim you on their tax return and they’re entitled to certain deductions and credits and receive tax benefits because of it. In order for you to be considered a dependent, you must either meet the qualifying child test or the qualifying relative test.
You can be considered a qualifying child if you’re under 19 or are under 24 and are a full-time student at the end of the calendar year. You must be younger than both your parent claiming you and your parent’s spouse if your parent and his or her spouse file a joint return.
You also need to live with your parent for at least half the year, unless you’re away for a specific reason such as going to school or serving in the military. You can’t have provided more than half your own financial support, and you can’t file your own joint return unless doing so for the sole purpose of claiming a refund.
If you’re too old to be a qualifying child, you could still be a qualifying relative and count as a dependent if your parents provide at least half your total financial support for the year and if your income is under $4,150 for 2018.
If your parents claim you as a dependent on their taxes, you can still file your own tax return to claim a refund, but you must check a box on the return specifying that someone else is claiming you.
Question 3: What Types of Documents Do I Need to File Taxes?
If you worked throughout the year, you will need your W-2 from your employer. If you earned income as an independent contractor or from other non-wage sources, you’ll need a 1099 tax document. If you want to claim a tax deduction for up to $2,500 for your student loan interest, you’ll need a 1098-T form detailing the interest you paid. If you’re claiming any other deductions, you’ll need receipts to support them. And, of course, you’ll need a 1040 form to file your taxes, as this basic form is considered to be your income tax return.
You may also need additional forms depending on your situation. For example, there are forms to claim a mortgage interest deduction if you own your own home.
Question 4: How Much Will Filing My Taxes Cost Me?
If your income is below a certain threshold, you can take advantage of free e-file. For 2018, you’re eligible to file for free using certain online tools, provided your income was under $66,000. In most cases, you can also file state taxes for free if you’re required to do so—but some tax filing programs charge you, especially if you’re filing taxes in more than one state.
If you choose to work with an accountant or another tax professional, they can file your taxes for free if your income is low enough—but you’ll pay for the services they provide.
Typically, if you do have to pay to file your taxes, it can cost anywhere from $9.95 and up. The price also depends on whether or not you have to file state taxes in addition to federal taxes.
Question 5: Will I Qualify for Any Tax Credits?
You may. There are a number of different tax deductions and credits available to students including:
- The American Opportunity Tax Credit: This credit could be worth up to $2,500 if you incurred qualifying educational costs during the year. You must be pursuing a degree or recognized educational credential and must be within the first four years of higher education at the start of the tax year.
- The Lifetime Learning Credit: This credit is worth up to $2,000 if you’re paying qualifying educational expenses for yourself, a spouse, or a dependent at an eligible educational institution.
If you are claimed as a dependent though, your parents will likely receive the credit and not you.
The IRS has an Interactive Tax Assistant to help you determine if you’re eligible to claim any educational credits. Credits are very valuable because they provide a dollar-for-dollar reduction in the taxes owed.
Question 6: Can I File My Taxes Online?
Yes. As a matter of fact, taxpayers are encouraged to file taxes online because the IRS is able to process electronically filed taxes much faster than paper applications. You’ll receive your tax refund much quicker as well.
Another benefit of filing your taxes online is that you’re able to double check your errors much more easily. Usually, online tax software programs check all the numbers you entered to ensure they add up. The software will also suggest deductions and credits you can claim.
Question 7: Do I Have to Work with a Tax Agent?
No. You can file your own taxes if you prefer. If you don’t have a lot of income or deductions to worry about, filing on your own is easy and a good tax software program will walk you through all of the steps you need to take.
Working with a tax agent can be helpful if your situation is complicated, but it is also expensive. For college students and recent grads, it’s usually not necessary to pay for professional help.
Question 8: Do I Have to Claim Financial Aid Money as Income?
In most cases, the financial aid you receive to pay for school isn’t taxed. In fact, you don’t have to pay taxes on any income you receive from federal student aid, including grants and scholarships, if the money goes towards paying qualifying educational expenses at an eligible school. Qualifying educational expenses can include your school tuition and fees as well as required expenses for courses you’re taking.
However, if you receive federal aid that exceeds the cost of tuition and fees—even if it’s need-based—you’re likely going to be taxed on it. This includes aid covering the cost of room and board, travel, and optional equipment. You’ll be required to report any income you receive from financial aid that goes towards costs that aren’t considered qualifying educational expenses. Your school may also have specific policies on what aid you need to report.
Remember, though, that student loans are never considered income and you aren’t taxed on money you borrow—you only need to worry about paying taxes on sources of aid you don’t have to pay back.
Question 9: Is Income Earned from Work Study Taxed?
When you earn income from federal work-study programs, the income is generally subject to both state and federal income tax. However, if you’re enrolled full time in school and work less than half the time, you typically won’t have to pay FICA on the income you earn. FICA is taxes that you pay to contribute to Social Security and Medicare.
Your employer should withhold the taxes you owe, but you’ll need to fill out a W-4 form when you get hired to help the employer determine how much money to withhold.
Question 10: What Tax Issues Do Self-Employed Students Face?
Many students work as independent contractors during school. You may be an independent contractor if you’re driving for a ride-sharing service, doing other side gigs, or running your own business. If you’re an independent contractor, you’ll receive a 1099 form detailing the income earned during the course of the year.
You won’t have an employer withholding taxes if you’re an independent contractor, but you’re still required to comply with tax rules that mandate you pay taxes as you earn income. This could mean you’re required to file quarterly estimated taxes and pay money into the IRS four times a year. The IRS has an online tool that will help you determine if you’re required to pay estimated taxes throughout the tax year.
Question 11: How Do Your Student Loans Affect Your Federal Income Taxes?
If you’re repaying your student loans, you may be eligible to take a tax deduction for some of the interest you pay. You can deduct the lesser of $2,500 or the actual interest paid during the year.
You’re eligible to take this deduction only if you were legally required to pay interest on the loan and meet certain other requirements, including not being claimed as a dependent on anyone else’s tax return.
Also, your household income can’t be too high or you lose the deduction. The income limit for claiming the student loan interest deduction changes periodically and is based on your tax filing status.