Tax season can be a stressful time for college students, who may be unsure about whether they need to file taxes and how to navigate the process. Contrary to popular belief, even part-time or seasonal workers, as well as independent contractors, may be required to file taxes if they have earned income. It’s important to determine your filing status, age, and gross income to determine whether you need to file a tax return. Even if you are not required to file, you may want to do so to potentially receive a refund of any federal income tax withheld and to claim credits such as the Earned Income Tax Credit, American Opportunity Credit, or Premium Tax Credit.
Dependents, like college students, must meet certain criteria to be claimed on someone else’s tax return. It’s crucial for college students to discuss their tax filing status with their parents, as they may assume they are supporting their child and plan to claim them as a dependent. Scholarships and grants can provide financial aid to students, and some may be tax-free if used for qualified education expenses. However, amounts used for other expenses, such as room and board, may be subject to tax.
Education tax credits, such as the American Opportunity Credit and the Lifetime Learning Credit, can help reduce the tax payable for qualified education expenses. These credits are available for students pursuing a degree or other recognized credential, and income limitations apply. Qualified distributions from a 529 account are tax-free and can include room and board expenses. Additionally, the student loan interest deduction allows individuals to deduct interest paid on student loans if certain criteria are met.
Another tax-saving opportunity for students is the education savings bond program, which allows individuals to exclude interest earned on U.S. savings bonds used for qualified education expenses. An exception also exists for early IRA distributions used to pay for qualified higher education expenses. Taxpayers should be aware of their due dates for filing taxes, as well as the option to request an extension if needed. Assistance is available through tax professionals, the Volunteer Income Tax Assistance (VITA) program, and tax preparation software. Taxpayers can also utilize free tax preparation services through the IRS Free File program for those who qualify based on their income.
