INCOME TAX FILING BASICS
If you earn income, you need to pay income taxes to the federal government and to state and/or local tax authorities. Income tax returns are due by April 15 each year and any taxes owed must also be paid by that deadline to avoid incurring penalties and interest. For low-income earners, there are some exceptions to the income tax return requirements depending on age and filing status.
For example, single individuals under age 65 who earned less than $12,200 in W-2 income or less than $400 in self-employment income in a given year are not required to file tax returns for that time frame. However, many college students would be wise to file tax returns even if their income falls below the threshold. That’s because you may be entitled to a refund from Uncle Sam or from your state or local taxing authorities if your employer withheld taxes from your pay throughout the year.
There are also possible tax write-offs for college students of which you may be able to take advantage. Tax benefits generally come in one of two forms: Tax deductions and tax credits. A tax credit decreases the amount of taxes you’re responsible for paying. A deduction reduces the portion of your earnings that is subject to income tax. In most cases, you cannot claim both a tax credit and a deduction, so work with a tax consultant to determine which benefit would be most valuable for you.
AVAILABLE TAX DEDUCTIONS FOR COLLEGE STUDENTS
You, or your parents if you are a dependent student, may be able to take advantage of the following tax benefits for college students:
- Lifetime Learning Credit. This credit of up to $2,000 is available for eligible students, when modified adjusted gross income (MAGI) is less than $68,000 ($136,000 for joint filers).
- American Opportunity Credit. A tax credit of up to $2,500 per student is available for the first four years of higher education when MAGI is $80,000 or less ($160,000 for joint filers). If the credit lowers the taxes you owe to zero, you can even receive a refund of 40% of the remaining amount of the credit, up to $1,000.
- Deduction for College Tuition and Fees. As an alternative to claiming tax credits, you could take a deduction of up to $4,000 for tuition, books, fees, and other qualified expenses. To claim this deduction, your MAGI must be less than $80,000 (less than $160,000 for joint filers).
- Student Loan Interest Deduction. If you are already paying interest on your student loans, you may also be able to claim a deduction of either $2,500 or the amount of interest you paid during the year, whichever is the lesser. You do not need to itemize deductions to take advantage of this benefit.
DON’T LEAVE TAX CREDITS OR DEDUCTIONS ON THE TABLE
The only way to know whether you are entitled to receive income tax refunds or lower your tax obligation is by preparing a tax return. For most students, preparing and filing taxes is relatively fast and easy. There are also free income tax filing tools available for those who qualify, so you don’t need to worry about finding the correct tax tables and performing calculations on your own. If you have questions about your specific situation, always consult with a qualified tax professional.
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