Lana Oconnell
Students in Illinois have to navigate a unique tax situation. While students are not exempt from paying taxes, their tax liability depends on their residency status, scholarship status, and income. Non-resident students, including international students, have different requirements and tax forms to complete. Additionally, students who receive scholarships may have a portion of their scholarship taxed, depending on the source and usage of the funds. Understanding these factors is crucial for students to accurately file their taxes and avoid penalties.
| Characteristics | Values |
|---|---|
| Students exempt from tax | No |
| Residency requirements for tax purposes | Yes |
| Special residency provisions for students | No |
| Filing requirements for first-time filers | File Form IL-1040 if any of the conditions listed here apply |
| Payment methods | Online, cheque, or partial payment |
| Scholarship taxation | Taxed at a flat rate for room, board, and other non-educational expenses |
| Work-study income | Taxable |
| Tax credits | AOTC, LLC |
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What You'll Learn
- Part-year Illinois residents must file Form IL-1040 and Schedule NR
- Non-residents must file Form IL-1040 and Schedule NR if their income is over their exemption allowance
- Students are not exempt from Illinois tax and there are no special residency provisions
- FICA taxes are exempt for non-resident aliens with F-1 and J-1 visas
- Students can be claimed as dependents on their parent's or guardian's taxes
Part-year Illinois residents must file Form IL-1040 and Schedule NR
As a part-year resident of Illinois, you must file Form IL-1040 and Schedule NR, Nonresident and Part-Year Resident Computation of Illinois Tax, if any of the following conditions apply:
- You earned income from any source while you were a resident.
- You earned income from Illinois sources while you were not a resident.
- You want a refund of any Illinois Income Tax withheld.
- You earned enough taxable income from Illinois sources to have a tax liability (i.e. your Illinois base income from Schedule NR is greater than your Illinois exemption allowance on Schedule NR).
It is important to note that if your only income in Illinois is from partnerships, S corporations, or trusts that withheld enough Illinois Income Tax to pay your liability, you are not required to file Form IL-1040. Additionally, if you are a nonresident alien, you must file Form 1040NR instead of Form IL-1040.
For those who are students or are claimed as dependents on their parents' or guardians' tax returns, it is important to know that you are not exempt from tax and there are no special residency provisions. However, certain scholarships, fellowships, and other forms of income that are not taxable under federal income tax law are also not taxed by Illinois.
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Non-residents must file Form IL-1040 and Schedule NR if their income is over their exemption allowance
Non-residents of Illinois must file Form IL-1040 and Schedule NR if their Illinois base income is greater than their exemption allowance. This is to determine the income that is taxed by Illinois during the tax year and to calculate the Illinois Income Tax. If you are a non-resident alien, you must file 1040NR, and failure to do so can place your immigration status in jeopardy.
If you are a resident of Iowa, Kentucky, Michigan, or Wisconsin and worked in Illinois, you must file Form IL-1040 and include Schedule NR if you received income in Illinois from sources other than wages, salaries, tips, and commissions. You must pay tax on this income regardless of your residency. If you are a non-resident taxpayer who received wages, salaries, tips, and commissions from an Illinois employer, you are not required to pay Illinois income tax on this income. This is based on reciprocal agreements between Illinois and these states.
If you are a part-year resident, you must file Form IL-1040 and Schedule NR if you earned or received income from any source while you were an Illinois resident, or if you earned or received income from Illinois sources while you were not an Illinois resident. If you were a resident of Illinois when you received the income, you will be taxed on 100% of the income you received while you were a resident, regardless of the source. If you were a non-resident of Illinois when you received the income, you will be taxed only on the income you received from Illinois sources.
If you are filing jointly and one spouse is a full-year resident of Illinois, both spouses must use full-year residency status. However, if one spouse is an Illinois resident and the other is a full-year non-resident, you may choose to file as "married filing separately." In this case, you must divide each item of income and deduction shown on your joint federal return between your separate Illinois returns following the Allocation Worksheet in the Form IL-1040 Instructions. The spouse filing as a non-resident must attach a completed Schedule NR.
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Students are not exempt from Illinois tax and there are no special residency provisions
Students in Illinois are not exempt from paying state taxes. This means that if you are a student in Illinois, you must file Form IL-1040 if you were required to file a federal income tax return, or if your Illinois base income is greater than your Illinois exemption allowance. Additionally, if you are a part-year resident of Illinois, you must file Form IL-1040 and Schedule NR. If you are a non-resident, you must file Form IL-1040 and Schedule NR if your Illinois base income from Schedule NR surpasses your Illinois exemption allowance. Notably, students with no tax liability will not be penalised by the Internal Revenue Service (IRS) for not filing taxes. However, if you want to apply for permanent residence in the U.S. in the future, you will need to prove compliance with all tax laws.
If you are a full-time student under the age of 24, you can be claimed as a dependent on your parent's or guardian's taxes. However, you can also file as an independent taxpayer. Your choice in this regard will impact your eligibility for tax credits. For instance, if you file as a dependent, only the taxpayer claiming you is eligible for the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC provides a maximum annual credit of $2,500 per eligible student for the first four years of higher education. On the other hand, the LLC has no limit on the number of years you can claim the credit and is worth up to $2,000 per tax return.
If you participate in a work-study program, your income is taxable, and you must complete a W-4 so that your college can withhold the appropriate amount of federal income tax. Your employer will provide you with a W-2, which will contain all the necessary information to fill out your 1040 form. Earnings from a work-study position are subject to state and federal payroll taxes, including FICA taxes (Medicare and Social Security). However, F-1 and J-1 non-resident aliens are exempt from FICA taxes on wages earned from legal employment in the U.S.
Furthermore, if your scholarship is from sources within the U.S., the portion used for room and board, as well as other "non-educational expenses", is taxed at a flat rate. However, the portion granted and used for tuition and required fees is exempt from U.S. tax. If your scholarship is provided by an entity outside the U.S., you will not pay taxes to the U.S. on your scholarship.
Finally, it is important to note that while you can live in multiple states in a year, you can only be a resident of one state for tax purposes. For snowbirds who live in Illinois and another state with more favourable tax treatment, such as Florida or Arizona, establishing residency in the other state is crucial to avoiding Illinois income taxes. This involves demonstrating that your residence in the other state is your "permanent home" and "principal establishment". Steps to achieve this include opening bank accounts in the other state, obtaining a driver's license from there, and registering your vehicles and boats there.
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FICA taxes are exempt for non-resident aliens with F-1 and J-1 visas
FICA Taxes and Exemptions
FICA, or the Federal Insurance Contributions Act, is a US federal payroll tax imposed on both employees and employers. FICA taxes are comprised of Social Security and Medicare taxes. Typically, aliens performing services in the United States as employees are liable for Social Security and Medicare taxes. However, nonresident aliens with F-1 and J-1 visas are exempt from FICA taxes. This exemption also applies to international students, scholars, professors, teachers, researchers, trainees, physicians, au pairs, summer camp workers, and other non-students with the same visa types.
The FICA exemption period for those with F-1 and J-1 visas covers the first five calendar years of physical presence in the US if they are full-time students at a US educational institution. For those who are not full-time students, the exemption period is two calendar years. After this period, they will be classified as resident aliens for tax purposes and will be subject to FICA tax withholding. However, if they remain students, they may still be eligible for the FICA exemption.
Illinois State Taxes
In the state of Illinois, students are not exempt from taxes, and there are no special residency provisions. If you are an Illinois resident, you must file Form IL-1040 if you were required to file a federal income tax return, your Illinois base income is greater than your Illinois exemption allowance, or your Illinois base income from Schedule NR is greater than your Illinois exemption allowance on Schedule NR.
If you are a part-year resident of Illinois, you must file Form IL-1040 and Schedule NR if you were required to file a federal income tax return, or if your Illinois base income from Schedule NR is greater than your Illinois exemption allowance on Schedule NR. Even if you go to school in another state, you are still considered an Illinois resident. Additionally, you may need to file a tax return with the other state as well, as each state has different tax laws.
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Students can be claimed as dependents on their parent's or guardian's taxes
In Illinois, students are not exempt from tax, and there are no special residency provisions for them. Even if you go to school in another state, you are still considered an Illinois resident if you have an Illinois address. As an Illinois resident, you must file Form IL-1040 if you were required to file a federal income tax return, or if your Illinois base income is greater than your Illinois exemption allowance.
Students can be claimed as dependents on their parents' or guardians' taxes, but certain criteria must be met. The student must be a qualifying child or qualifying relative. To be a qualifying child, the student must be a son, daughter, stepchild, eligible foster child, brother, sister, half-sibling, step-sibling, or adopted child of the taxpayer. The student must be under the age of 19 or under 24 if they are a full-time student, or be permanently and totally disabled. The student must have lived with the taxpayer for more than half of the tax year, with some exceptions for temporary absences. Additionally, the student must have received more than half of their financial support from the taxpayer.
If the student does not meet the criteria for a qualifying child, they may still be claimed as a dependent qualifying relative if the taxpayer provides more than half of their support, their gross income is less than a certain amount ($5,200 in 2025 or $5,050 in 2024), and they are not a qualifying child of any other taxpayer.
It is important to note that even if a student is claimed as a dependent, they may still be required to file their own tax return. The filing requirement depends on their income, marital status, and other criteria.
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Frequently asked questions
If your scholarship is from sources inside the United States, the portion of your scholarship used for room and board as well as for other "non-educational expenses" is taxed at a flat rate. If your scholarship is provided by an entity outside the United States, you will not pay taxes to the U.S. on your scholarship.
If you are a minor who is being claimed as a dependent, you must file taxes if you made more than $517 a month. If you did not make more than $12,950, you will not owe taxes.
As a part-year resident, you must file Form IL-1040 and Schedule NR if you were required to file a federal income tax return, or if your Illinois base income from Schedule NR is greater than your Illinois exemption allowance on Schedule NR.
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