Ibrahim Gardner
Students often have part-time or full-time jobs, and some freelance alongside their studies. This means that students may have to pay income tax, depending on how much they earn. In the US, a single individual who earned between $9,876 and $40,125 in 2022 fell into the 10-12% tax bracket. Those earning between $40,126 and $85,525 fell into the 12-22% tax bracket. Students may also be eligible for tax credits and deductions, such as the American Opportunity Tax Credit (AOTC), which could give up to $2,500 per year to help with tuition fees, food, housing, and healthcare. Students can also get money back on their taxes through education credits and deductions.
| Characteristics | Values |
|---|---|
| Tax filing for students | Free in some cases |
| Tax filing for minors | Free if income is less than $14,600 in 2024 |
| Tax filing for minors with "unearned income" | Necessary if income is $1,300 or more (tax year 2024) |
| Tax filing for students with income | Depends on tax bracket; 10-12% for income between $9,876 and $40,125 in 2022 |
| Tax filing for students with income | 12-22% for income between $40,126 and $85,525 in 2022 |
| Student tax benefits | American Opportunity Tax Credit (AOTC) of up to $2,500 per year |
| Student tax benefits | Earned Income Tax Credit (EITC) of nearly $4,000 for those earning less than $63,400 per year |
| Student tax benefits | Child Tax Credit (CTC) of $2,000 for parenting students with dependents |
| Student loan interest deductions | Form 1098-T required |
| Student loan interest deductions | Form W-4 required |
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What You'll Learn
Student loan interest deductions
Student loan interest tax deductions can help students and graduates facing student debt. Student loan interest is the cost of borrowing money to pay for your education. When you take out a student loan, you agree to repay the loan amount (the principal) plus interest, which is calculated as a percentage of the unpaid principal balance.
If you are a higher-income taxpayer, the student loan interest tax deduction is reduced or eliminated. You can't claim the deduction if your modified adjusted gross income (MAGI) is above the income limit. For example, if you’re filing as Single, Head of Household, or Qualified Surviving Spouse (for tax year 2024), you can deduct up to $2,500 of paid student loan interest if your modified AGI is $80,000 or less. Your student loan deduction is gradually reduced if your modified AGI is more than $80,000 but less than $95,000. You can’t claim a deduction if your modified AGI is $95,000 or more.
You can subtract up to $2,500 of interest paid from your gross income when calculating your adjusted gross income. If you paid more than $600 in interest for the year, your lender will send Form 1098-E, Student Loan Interest Statement. The IRS will also receive a copy of this tax form from the student loan servicer.
You can claim the deduction if all of the following apply:
- You paid interest on a qualified student loan in the tax year.
- You're legally obligated to pay interest on a qualified student loan.
- Your filing status isn't married filing separately.
- Your MAGI is less than a specified amount, which is set annually.
- Neither you nor your spouse, if filing jointly, were claimed as dependents on someone else's return.
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Tax credits and deductions
Students can benefit from tax credits and deductions to help with the cost of higher education. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are two education credits available to eligible students. These credits reduce the amount of tax owed, and if they bring the tax owed to less than zero, a refund may be issued.
The AOTC offers a maximum annual credit of $2,500 per eligible student, and if the credit brings the amount of tax owed to zero, 40% of any remaining credit (up to $1,000) can be refunded. To be eligible for the AOTC, students must meet specific criteria, including having received Form 1098-T from an eligible educational institution and not having claimed the credit for more than four tax years. Students can determine their eligibility for education credits and deductions using the Interactive Tax Assistant or the "Am I eligible to claim an education credit?" app.
The student loan interest deduction allows taxpayers to reduce their income subject to tax by up to $2,500. This deduction is taken as an adjustment to income, meaning it can be claimed even if itemized deductions are not itemized on Form 1040's Schedule A. Students can also claim education deductions and credits on their tax returns, such as loan interest deductions, qualified tuition programs (529 plans), and Coverdell Education Savings Accounts.
Minors who earn an income may also need to consider filing a tax return. In 2024, a minor who earns less than $14,600 will typically not owe taxes but may choose to file a return to receive a refund of any tax withheld. If a minor earns $1,300 or more in "unearned income," such as dividends or interest, they will need to file a tax return. TurboTax offers free filing for simple Form 1040 returns, which can be used to claim the Earned Income Tax Credit, Child Tax Credit, and student loan interest.
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Scholarships and grants
Additionally, scholarships and grants received as part of specific programs, such as the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program, are typically not included in gross income. On the other hand, if a scholarship or grant includes payments for teaching, research, or other services as a condition of receiving the award, those amounts are generally taxable.
It's worth noting that scholarships and grants are not the only forms of financial assistance available to students. There are also tax credits, such as the American Opportunity Credit and the Lifetime Learning Credit, which can help reduce the cost of post-secondary education. Students can also explore options like student loans, qualified tuition programs (529 plans), and Coverdell Education Savings Accounts, each with its own tax implications.
To summarize, scholarships and grants can provide significant financial support to students, and in many cases, the amounts received are not considered taxable income as long as they are used for qualified education expenses. However, it is important to carefully consider the specific requirements and guidelines to ensure compliance with tax regulations.
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Employment status
As an employee, your employer will automatically withhold your money and send it to the IRS. You will need to fill out a W-4 form before beginning your job, which will determine how much your employer withholds from your paycheck. There are multiple options, so be sure to choose the one that best suits your situation. Failing to withhold enough tax can result in owing a significant amount of money once it's tax time in April and potential penalties. On the other hand, if you withhold too much, you'll likely have a limited budget each month, which can be challenging for students.
If you are a freelancer or independent contractor, the company you work for will not withhold taxes for you. You are responsible for reporting your taxes and sending in either quarterly estimated tax payments or an annual tax payment.
As a student, you may be eligible for a refund even if you are not required to file. For example, if you worked a part-time or full-time job and your Form W-2 shows federal and state withholding, you may qualify for a refund. You may also be eligible to claim education deductions and credits on your tax return, such as loan interest deductions, qualified tuition programs (529 plans), and Coverdell Education Savings Accounts. Students who are dependents on their parents' tax returns are generally not eligible to claim these deductions, but their parents may be able to claim them.
Additionally, students can benefit from educational credits, such as the American Opportunity Tax Credit (AOTC), which can provide up to $2,500 per year to help with tuition, food, housing, and healthcare expenses. A student who works part-time or full-time and earns less than about $63,400 per year could also qualify for the Earned Income Tax Credit (EITC) of nearly $4,000. These benefits can quickly add up, but remember that you must file taxes to receive them.
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Tax filing
As a student, you may be eligible for tax credits and deductions, such as loan interest deductions, qualified tuition programs (529 plans), and Coverdell Education Savings Accounts. If you are a dependent on your parents' tax returns, they may be able to claim these deductions instead.
If you worked a part-time or full-time job during the year and had federal and state taxes withheld from your paychecks, you may be eligible for a refund even if you are not required to file a tax return. You can file a simple Form 1040 return for free with TurboTax or H&R Block if you do not need to include any other forms or schedules except for claiming the Earned Income Tax Credit, Child Tax Credit, or student loan interest.
If you are an independent contractor (e.g. working for Lyft or DoorDash), your taxes may be more complex and you may not qualify for free filing with H&R Block. In this case, you can use TurboTax Live Assisted to get help from tax experts or pay to have a local expert prepare your taxes for you.
If you are a minor, you generally do not need to file a tax return if you earn less than $14,600 in 2024. However, if you earn more than $1,300 in "unearned income," such as dividends or interest, you will need to file a tax return.
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Frequently asked questions
A tax bracket specifies the percentage of taxable income that is paid in taxes. For example, in 2022, single individuals who earned between $9,876 and $40,125 fell into the 10-12% tax bracket.
It depends on your income and whether you are claimed as a dependent. If you are a dependent, you need to file a return if your income exceeds your standard deduction. If you earn less than $14,600 in 2024, you usually won't owe taxes.
Students may be eligible for various tax credits and deductions, such as the American Opportunity Tax Credit (AOTC), which offers up to $2,500 per year. Students with dependents might also qualify for the Child Tax Credit (CTC). Additionally, students can claim deductions for loan interest, qualified tuition programs, and education savings accounts.
As an employee, your employer will withhold income tax, Social Security, and Medicare from your wages. As an independent contractor, you are responsible for reporting and paying taxes yourself, typically on a quarterly or annual basis.
You may need to fill out a W-4 form before starting a job to determine how much tax your employer should withhold. Additionally, keep an eye out for Form 1098-T, which is required for claiming education credits.
