For many young people, college is the first time they pay taxes independently rather than as dependents, and it can be a confusing experience that generates a lot of questions. Do they qualify for exemptions or deductions? Will they owe money?
While most college students won’t – and shouldn’t – hire a professional to do their taxes, there are plenty of online resources that can prepare them for that April 15th deadline. These basic guidelines can help student filers get started.
The Dependent Question
Are college students dependents? Most full-time students are considered dependents under IRS guidelines because they aren’t financially independent. That doesn’t mean they don’t have to file their own taxes, though. A dependent filer simply can’t take exemptions – even if their parents don’t claim them as dependents in their own filing.
Don’t get confused by the difference between exemptions and deductions. Though the terms may sound similar to new tax filers, exemptions are an integral part of an individual’s filing status while deductions are individual reductions they can make based on a particular status or expenditure. Dependents can’t take exemptions but they can take deductions.
Student Loan Interest
Most American students are buried in student loan debt, but many don’t realize that they can deduct their student loan interest. This is true even if their parents technically pay their student loans, because the students themselves sign the contract committing to the payment. This can help students get a much needed tax refund. Since students earn very little income to begin with, they tend to be in the lowest tax bracket and receive a greater amount of money back. Students’ additional tax obligations are covered by the top 10% of earners.
Document Everything
Students don’t always keep great records, but they need to carefully document their educational expenses in order to file accurate taxes. Such documentation includes student transcripts, scholarship information, and any employment documents such as W-2s. All of this will help students and their parents to fill out the FAFSA for financial aid. Students can find our more about FAFSA paperwork on the IRS website or through their student financial aid office.
The Accreditation Trap
Most college programs are accredited – that’s what allows them to give out recognized degrees. However, there are some students who attend programs that are not accredited, and they may not even realize it. Unfortunately, students enrolled in non-accredited programs cannot apply for educational tax breaks such as the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC). Students in non-accredited programs are also ineligible to deduct student loan interest.
Get Help On Campus
While students may not hire an accountant to do their taxes, they shouldn’t go it alone. What many don’t realize is that there are often tax filing support programs on campus where they can get help from fellow students or community volunteers. Or, they can file their taxes online via guided platforms. Either way, there’s no reason for students to muddle through the process on their own.
Ultimately, the most important thing any student can do is to be sure to file their taxes and get them in on time. After all, missing a few deductions is better than having the IRS come knocking.
