Full-Time University Students: Do They Pay Income Tax?

Whether or not full-time university students need to pay income tax depends on several factors, including the country in which they are studying, the amount of their income, and whether they are claimed as a dependent on someone else's tax return. In the UK, full-time students are exempt from paying council tax but must pay income tax if they earn more than £1,042 per month. In the US, full-time students are not exempt from federal income taxes, but they may not be required to file a tax return if their income is below the filing requirement for their age, filing status, and dependency status.

Do full-time students pay income tax on their earnings?

In the UK, students have to pay some types of tax, but not as many types as non-students, especially if they are full-time students. They must pay income tax if they earn more than £1,042 a month, not including student loans and bursaries. This is usually deducted by the employer along with National Insurance contributions. Students who are full-time do not need to pay council tax, but part-time students usually do.

In the US, there is no exemption from tax for full-time students. Every US citizen or resident must file a US income tax return if certain income levels are reached. If you are a full-time student, you may not be working full-time and may not reach those income levels. Factors that determine whether you have an income tax filing requirement include the amount of your income (earned and unearned), whether you are able to be claimed as a dependent, your filing status, and your age.

If your income is below the filing requirement for your age, filing status, and dependency status, you will not owe income tax on the income and will not have to file a tax return. Even if you're not required to file an income tax return, you may choose to file a return if you're entitled to a refund of withheld income tax or estimated tax, or you're eligible for a refundable credit.

Do full-time students pay income tax on their student loans?

Students have special tax situations and benefits. While student loans don't count as income, borrowers could owe taxes on portions of scholarships and grants. If you're filing a tax return, you may need to include scholarships and grants as taxable income. However, scholarships and grants are typically tax-free.

Student loans are not taxable income, so you don't report them on your tax return, and you don't have to pay taxes on certain types of financial aid. Private and federal student loans are not taxable because they have to be repaid.

However, settled student loan debt is typically taxable. If you settle your federal or private student loan for less than the full amount, you may owe taxes on the amount you didn't pay. If your student loan debt is forgiven or discharged, it is tax-free at the federal level through 2025, including income-driven repayment plans. However, state taxes may apply.

If you're using several ways to pay for school, you may be confused about what is taxable. Here's a breakdown of what is and isn't taxable:

• Portions of scholarships and grants: You will need to pay taxes on scholarships used for anything other than tuition payments, books, and supplies.
• Employer-provided tuition assistance programs: Contributions to employees may be taxable. You will pay taxes on any amount over $5,250 toward your education in a year.
• Student-athlete stipends: These are taxed when used toward room and board or incidentals.
• Federal work-study programs: Your work-study income is taxable, and your school will give you a W-2 form with the necessary information.

• Student loans: As mentioned, private and federal student loans are not taxable.
• Scholarships and grants used for certain expenses: If you're a degree-seeking student, amounts used for books, supplies, tuition, and fees are not taxable.
• Resident advisor room and board: Income tax generally doesn't apply to these benefits.
• College savings plans: Certain types of accounts can grow tax-free, including Series EE or Series I bonds, 529 college savings accounts, and Coverdell education savings accounts.
• Loan interest deductions: You may be eligible to claim loan interest deductions on your tax return.

Tax Benefits for Students

Students can benefit from various tax credits and deductions to reduce their tax burden. These include:

• American Opportunity Credit: You can claim up to $2,500 per year for the first four years of school toward a degree or similar credential.
• Lifetime Learning Credit: You can claim up to $2,000 per year for any college or career school tuition, fees, and required books, supplies, and equipment.
• Tax deductions: You can take a tax deduction for interest paid on student loans, up to $2,500 per year, depending on your income.

Filing Taxes as a Student

When filing taxes, don't report your student loans as income. If your entire scholarship is nontaxable, you don't need to report it on your return. However, any portion used for room and board, travel, or optional expenses is taxable and should be included in your gross income.

Additionally, if you benefited from an employer student loan repayment program, up to $5,250 is considered nontaxable. Any amount over this must be reported as income, and your employer will likely include this on your W-2 form.

Finally, if you paid interest on your student loans, you may be eligible for the student loan interest deduction. Your student loan servicer will send you Form 1098-E if your interest payment was over $600. If you paid less, you can still deduct the interest by contacting your servicer to receive the form or accessing your online account.

Do full-time students have to file a tax return?

In the UK, students have no special status in the tax system and are liable to pay income tax and National Insurance contributions in the same way as other taxpayers. However, the amount of tax a student pays depends on their income and whether they are a dependent.

Full-time students who are working part-time will likely be taxed through the Pay As You Earn (PAYE) system, where tax and National Insurance contributions are automatically deducted from their wages by their employer.

If a student is earning over £1,048 per month on average, they will be taxed on this income. Similarly, if a student is earning over £242 per week, they will be required to pay National Insurance contributions.

If a student is self-employed, they will need to fill in a Self Assessment tax return each tax year, detailing their income and expenses, and pay any tax owed to HM Revenue and Customs (HMRC).

Students who are dependents may not need to file a tax return unless they meet certain criteria. For example, if someone else claims a student as a dependent, they will need to file a return if their unearned income is more than $1,050, their earned income is more than $6,300, or their gross income is more than the larger of earned income (up to $5,950) plus $350. If no one can claim a student as a dependent, they will need to file a tax return if their gross income is at least $10,300 if they are under 65, or $15,700 if they are 65 or older.

Do full-time students pay council tax?

In the UK, full-time students are usually exempt from paying council tax. However, this exemption only applies if they meet specific criteria and can provide valid proof of their student status.

Criteria for Exemption

To be considered a full-time student for council tax purposes, an individual's course must meet certain requirements. The course must last at least one calendar or academic year, and the student must be enrolled for a minimum of 21 hours of study per week for at least 24 weeks per year.

Proof of Student Status

To claim a council tax exemption, students typically need to provide a 'certificate of student status' or a 'student certificate'. This document is usually issued by the student's university or college at the start of the academic year. Once obtained, the certificate should be submitted to the local council to confirm eligibility for the exemption.

Household Considerations

The council tax exemption for full-time students applies to households where all residents are full-time students. If there are non-students in the household, the exemption may not apply, and the non-students may be responsible for paying the council tax bill. However, if there is only one non-student in the household, they may receive a 25% student council tax discount.

International Students

International students studying full-time in the UK are generally treated the same as domestic students regarding council tax. They are typically eligible for a council tax exemption if their course meets the full-time student criteria.

Part-Time Students

Unlike full-time students, part-time students are not automatically exempt from council tax. They are usually charged council tax similarly to non-students, although they may be eligible for a student council tax discount or reduction under certain circumstances, such as low income or living alone.

Other Exempt Individuals

In addition to full-time students, other individuals who may be exempt from council tax include:

• Under 25-year-olds undergoing specific types of training, like government training schemes.
• A full-time student's foreign spouse, partner, or dependent who is not permitted to work in the UK.
• Student nurses (who are not already classified as full-time students).
• Apprentices earning below a specified weekly income threshold.

Do full-time students pay national insurance tax?

In the UK, full-time students are required to pay National Insurance if they earn over £162 a week in taxable income, or more than £166 a week, according to another source. This is separate from income tax and is collected for the student's future state pension.

National Insurance is deducted alongside income tax from a student's income. Self-employed students must complete a self-assessment tax return each year, which includes National Insurance. This is done by filling out a form with details of the student's income and expenses, which is then used by HMRC to determine how much tax needs to be paid.

If a student has paid tax but stops working before the end of the tax year, they may be able to claim a refund on the excess tax paid. This can be done using HMRC's tax checker tool or by contacting HMRC directly.

Frequently asked questions