Here’s what college students should know about taxes this year. Yahoo Money
February 26, 2022·6 min read
Read in website: Here’s what college students should know about taxes this year
One lesson college students may miss in school is how to fill out their taxes.
Uncle Sam offers students key tax breaks on their education expenses, and this year, some students may qualify for a credit for the 2021 stimulus check they never received.
Yahoo Money asked several tax pros how they would advise college students who are doing their taxes for the first time. Here’s what they had to say.
Do you even have to file?
There is a certain income limit that students must meet before they file for taxes, according to Gena Jones is a certified public accountant and the founder and CEO of Jones Tax Group.
“A student is only required to file an income tax return if their earned income is more than the standard deduction of $12,550 in 2021,” Jones told Yahoo Money.
We want to hear from you! Tell us your personal finance questions or concerns by emailing firstname.lastname@example.org.
Income made through from work study is also taxable. And part-time income as a gig worker also counts.
“If the student is a gig worker, they must file an income tax return if their net income from the gig work is $400 or more,” Jones said.
Student workers need to use the information from W-2 forms they receive from their employers to file a 1040 tax form. Gig workers need to fill out additional information.
“A gig worker is treated as having a business and must report their business income and expenses on Schedule C, which will accompany their personal income tax return, form 1040. If students had side gigs during the last year, they have to fill out a 1099 form,” Jones said.
Stimulus check, anyone?
There are other good reasons to file your taxes this year if you’re a college student. If you didn’t get the $1,400 stimulus sent out in the spring of last year because you were listed as a dependent on your parents’ taxes, you can get that money this year if you file a federal tax return. Kristin Roberts, owner of the Roberts Tax Group and associate accounting professor at Post University, said that if students were dependents in 2020, they can claim the 2021 stimulus check on their own taxes this year.
“Parents can claim their children up to the age of 24 if they are full-time students and the parents still provide more than 50 percent of the student’s financial support. If students independently file this year, yes, they can claim the claim the Recovery Tax Rebate for their $1400 stimulus check,” said Roberts.
Here are two key credits for students
There are also two credits that students can claim on their taxes. The American Opportunity Tax Credit can be claimed by some students on the 1098-T tax form.
“Students might be eligible for the American Opportunity Tax Credit if you’re still an undergrad. The adjusted gross income has to be under $80,000. The maximum credit is $2,500,” said Jamie Barnes, a certified public accountant from Sherwood Tax and Accounting.
Eligible students must be pursuing a degree at least part-time for a minimum of one semester at the start of the tax year. They also must not have claimed the American Opportunity Tax Credit for more than four years and not have a felony drug conviction when the tax year ends.
Another credit that students can claim is the Lifetime Learning Credit. Barnes explained that the credit is for students who take courses to improve their job skills. Students can claim that credit on the 8863 tax form.
The Lifetime Learning Credit is eligible for students who are undergraduates. Barnes noted that students who “acquire or improve job skills and bachelor degree programs after the fourth year qualify for a maximum credit of $2,000”. She also noted that “the student’s gross income must be below $90,000 to qualify for the credit. “
Students can also qualify for the Lifetime Learning Credit if they’re enrolled for at least one semester. Unlike the American Opportunity Tax Credit, there is no limit on the number of years students can claim the Lifetime Learning Credit.
What about scholarships?
While scholarships are not taxable income, if students used scholarship money for anything other than tuition, they have to report that money as taxable income, according to Armine Alajian, a certified public accountant at the Alajian Group.
“If you have a scholarship, you have to report any portion of that scholarship that you used for anything apart from tuition, fees, books and supplies,” Alajain said. “If you used part of the scholarship money for room and board, for example, report that portion as taxable income on form 1040.”
Don’t forget to deduct student loan interest
Even though there is a current pause on student loan repayments for students until May 1, students who made payments on their loans can get a tax break on the interest they paid.
“If you are currently paying off a student loan, you can deduct the interest you paid, and this amount is indicated on form 1098-E,” Alajian said.
Barnes noted that students with income less than $65,000 a year can deduct a hefty amount.
“Students can deduct up to $2,500 of student loan interest paid on qualified education loans for college or vocational school expenses as an adjustment to income,” Barnes said. “This adjustment helps lower their taxable income.”
Eligible students must be legally obligated to pay interest on a student loan in 2021 and must have paid interest in 2021. Students can also be eligible for the student loan interest deduction if they aren’t filing separately from their spouses. Married students can also claim the deduction if they aren’t able to be claimed as a dependent on someone else’s income tax returns.
Get help, if needed
While students can file taxes online, Jones recommends that they consult an accountant to help them with any questions they may have, especially if they’re filing for the first time.
“When students need help with taxes, my first recommendation would be for them to use the services of their parent’s accountant. The parent’s accountant will have more insight into the effects of the student filing their own income tax return independently or remaining a dependent of their parents. If they are not able to use their parent’s accountant, they should seek an accountant who understands the unique concerns of students,” said Jones.
Students can file for free with tax expert help at hrblock.com.
If you cannot afford a tax professional, Volunteer Income Tax Assistance (VITA) offers free tax preparation for moderate- to low-income individuals, disabled, senior citizens, or those who have a language barrier.