College gives you the first real taste of adulthood and independence. You can eat junk food for dinner. Decide when to go to bed. Keep your dorm room messy. It’s up to you! The downside? You must also handle all of those “adulting” responsibilities your parents previously managed. And if you’re working while in school, you may have to worry about taxes. Do college students need to file taxes? It depends on whether you’re working and how much you earn. You likely have to file a return if you have a part-time job or side hustle. But on the plus side, you may be eligible for a student tax refund and get an influx of cash. Here is what you need to know about taxes for college students and tips for maximizing your tax refund:
7 Tax Tips for College Students
Every year, Americans are required to submit their tax returns if they meet a specific income minimum. The tax deadline is usually April 15, but if that date falls on a weekend or legal holiday, the deadline is moved to the next business day. For 2024, the tax deadline is Monday, April 15, 2024. It’s a good idea to start planning in advance so you aren’t scrambling at the last minute. Whether it’s your first time filing taxes or you’ve done it before, here are seven tips to help you through the process:
1. You May Not Have to File a Tax Return
Do college students need to file taxes? No answer applies to everyone, so you’ll need to do a little research. As a college student, you’re likely a dependent for tax purposes on your parents; you can be considered a dependent until you turn 24. If that’s the case, you may not need to file a return; your parents will file a return and claim you as a dependent on their taxes. However, there’s a chance you may need to file a separate tax return, even if your parents claim you as a dependent. You’ll need to file a return if you meet any of the following criteria:
- You’re single and earn more than $12,950 per year, such as earnings from a part- or full-time job
- You earned $1,150 or more or unearned income, such as interest or dividends from investments
- You earned $400 or more from self-employment, such as a side gig you do in your spare time on your own
2. Some of Your Financial Aid May Be Taxable As Income
Scholarships and grants are gift aid, so they don’t have to be repaid. That makes them a valuable source of financial aid. But how you use the funds can impact how they’re handled at tax time. Scholarships and grants are typically tax-free, but only if you use them for qualifying education expenses. Qualifying expenses include tuition, school-required fees, and textbooks. If you use your scholarship or grant dollars for other expenses — such as your room and board or transportation — it’s taxable as income.
3. You May Qualify for Valuable Tax Credits or Deductions
Whether your parents claim you as a dependent on their taxes or you file a separate return, you could qualify for valuable tax credits or deductions.
- Tax credit: A tax credit reduces how much of your tax bill you owe. For example, if your tax bill is $1,000 and you qualify for $500 of tax credits, your bill is reduced to $500.
- Tax deduction: A tax deduction reduces your taxable income. For example, if you earn $15,000 per year and qualify for $500 of deductions, your taxable income is reduced to $14,500. That can result in a lower tax bill or a larger tax refund.
As a college student, there are three main credits and deductions you may qualify for:
- American Opportunity Tax Credit (AOTC): During the first four years of postsecondary education, you can get a tax credit of up to $2,500 through AOTC. And it’s partially refundable. That means if the credit reduces your tax bill below $0, you can get up to $1,000 refunded to you as a lump sum.
- Lifetime Learning Credit (LLC): The LLC is a credit worth up to $2,000, and there’s no limit to how many years you can claim it. However, it’s not refundable, so you won’t get the remainder of the credit if it drops your bill to zero.
- Student Loan Interest Tax Deduction: If you have existing student loans and make payments, you could qualify for a tax deduction of up to $2,500 (or however much you paid in interest, whichever is less).
4. You May Be Able to File Your Taxes for Free
It can be overwhelming if you haven’t filed your taxes before, and you might not know where to start. Luckily, you don’t have to do it on your own! There are free, legitimate resources that can help:
- IRS Free File: IRS Free File is an online tax preparation program. It will guide you through each step of the tax preparation process, asking you questions about your income and expenses to prepare your tax return for you. As long as you earned less than $73,000, you can use it and file your tax return at no charge.
- Volunteer Income Tax Assistance (VITA): VITA is a free basic tax return preparation service. Trained volunteers help people who earn $60,000 or less prepare and file their taxes. Use the VITA locator tool to find a VITA location near you.
5. You Have to Report Your Side Hustle Income
A common misconception is that side hustle income isn’t taxable. But whether you deliver groceries for Instacart or drive for Uber, you must report your earnings and pay taxes on your income. According to the IRS, all of the following sources of income are taxable:
- Income from a full-time, part-time, or temporary job
- Income that isn’t reported on a tax form like 1099-K, 1099-MISC or W-2 statements
- Income that is paid in cash, virtual currency (such as cryptocurrencies) or property
Even if you make money entirely alone, such as by pet sitting for neighbors or providing childcare, you must keep good records and pay taxes on that income. On the plus side, you can deduct expenses related to your side gig. For example, you can deduct supplies you purchased or mileage for your work. You can use the IRS’ guide to gig work taxes for more information and tips on managing and reporting side gig income.
6. Make Interest Payments Toward Student Loans to Qualify for a Deduction
As mentioned above, the student loan interest tax deduction is a valuable deduction that can reduce your taxable income by up to $2,500. But many college students miss out on it. Because many students defer their payments until after graduation, they don’t pay anything against the interest on their loans, so they aren’t eligible for the deduction. However, you can qualify for the deduction even if you aren’t required to make payments. The student loan interest tax deduction applies to both voluntary and required payments. That means if you decide to make payments while you’re in school — even if you just pay a little, such as $5 or $10 per month — you can take advantage of the tax deduction. Making payments while in college can be a smart idea; you’ll reduce the amount of interest that accrues on your balance and get out of debt faster. And if you chip away at the interest, you can also qualify for a valuable deduction that reduces your taxable income.
7. Use Your Tax Refund Wisely
When you file your taxes, you may find that you’re entitled to a tax refund. A refund means you paid too much in income taxes over the course of the year, so the government refunds you the overage amount. For many people, that tax refund is the biggest windfall they’ll get all year. To maximize the value of your refund, consider using it in one of the following ways:
- Treat yourself: Set aside a portion of your refund — such as 10% of the refund amount — and use it to treat yourself. A small splurge will reward you and motivate you to use the remainder wisely.
- Deposit into a high-yield account: A tax refund is a great way to establish an emergency fund. Deposit the tax refund amount into a high-yield savings account, and your refund will continue to earn interest and grow over time.
- Put it toward the next semester: If you have more semesters ahead of you, put the tax refund toward your upcoming education costs, such as your tuition or textbooks.
Pay down student loan debt: If you took out loans to pay for college, using your refund to pay down your balance can be one of the best uses for it. It can help you save a substantial amount of money over time, and you’ll pay off your student loans faster.
