Student Taxletes

Learn more about your tax filing requirement as a student and the special tax incentives for attending institutions of higher education.

Tax Return Filing Requirements for Students

 

Many students have trouble determining whether they are required to file a federal income tax return, especially if a parent can claim them as a dependent on their tax return. Students can quickly determine whether they are required to file a tax return by using the IRS's Interactive Tax Assistant tool. Note, even if a student is not required to file a tax return, doing so may enable the student to receive a tax refund. Access the tool through the following link:

 

File Your Taxes for Free

 

If you are required to file a tax return, or if doing so would entitle you to a tax refund, strongly consider using the IRS Free File program to safely and conveniently file your taxes from the comforts of your home. Individuals who made $72,000 or less in 2020 are eligible to use the Free File program. Find out more information on our Free File program page or click the link below to go right to the Free File Lookup tool---a quick way to find a free offer based on your specific circumstances.

 

Scholarships & Grants

Nontaxable Portion of Scholarships & Grants

Generally, you are not required to pay taxes on funds you receive in connection with a scholarship, a fellowship grant, or other grant. However, you must satisfy the following two conditions for the funds to be nontaxable:

  1. You attend an educational institution that maintains a regular faculty and curriculum, and one that normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and

  2. The funds received are used to pay for tuition and fees required for enrollment or attendance at the educational institution (or used for fees, books, supplies, and equipment required for courses at the educational institution).

 

Taxable Portion of Scholarships & Grants

According to the IRS, the following scholarship and grant amounts are subject to tax and must be included as part of your gross income on your tax return:

  • Funds used for incidental expenses (e.g., room and board, travel, and optional equipment); and

  • Funds generally received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant).

Education Tax Incentives

Available Tax Credits

An education tax credit helps subsidize the costs of higher education by reducing (dollar-for-dollar) the amount of tax owed on your tax return. If the credit reduces your tax liability to less than zero, you may be entitled to receive a refund. There are two types of education credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Learn more about these two credits in the FAQ section below.

Use the IRS's Interactive Assistant tool to determine if you are eligible to claim an education credit, and whether you can claim a tax deduction for qualified education expenses. Access the tool using the following link:

 
 
 

Students: Frequently Asked Tax Questions

General

Filing Requirements: Do I need to file a tax return if I am student? What if a parent (or someone else) claimed me as a dependent on their return?


It depends. To quickly and easily determine if you are required to file a tax return (or should file anyway to receive a tax refund), use the IRS's Interactive Tax Assistant tool. If a parent (or someone else) can claim you as a dependent on their tax return, you are required to file a rax return if any of the following situations apply: For single dependents (under age 65 and not blind), you generally must file a return if:

  1. You earned more than $12,200 in a single tax year from a job or jobs; or
  2. You received more than $1,100 of unearned income (e.g., taxable interest, ordinary dividends, and capital gain distributions).
For married dependents (under age 65 and not blind), you generally must file a return if: You must file a return if ANY of the following apply:
  1. You earned more than $12,200 in a single tax year from a job or jobs; or
  2. You received more than $1,100 of unearned income (e.g., taxable interest, ordinary dividends, and capital gain distributions); or
  3. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
For more information, see the IRS's Form 1040 Instructions, Chart B, page 10.




Scholarships & Grants: Do I need to pay taxes on the funds I received as part of my scholarship or grant?


It depends. Nontaxable Portion of Scholarships & Grants Generally, you are not required to pay taxes on funds you receive in connection with a scholarship, a fellowship grant, or other grant. However, you must satisfy the following two conditions for the funds to be nontaxable:

  1. You attend an educational institution that maintains a regular faculty and curriculum, and one that normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
  2. The funds received are used to pay for tuition and fees required for enrollment or attendance at the educational institution (or used for fees, books, supplies, and equipment required for courses at the educational institution).
Taxable Portion of Scholarships & Grants According to the IRS, the following scholarship and grant amounts are subject to tax and must be included as part of your gross income on your tax return:
  1. Funds used for incidental expenses (e.g., room and board, travel, and optional equipment); and
  2. Funds generally received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant).




Employer Educational Assistance: Are there any special tax considerations for educational assistance I received from my employer?


According to the IRS, if you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.





Deductions

What is a tax deduction?





Student Loan Interest: Can I deduct the interest I paid towards my student loan debt?


Generally, personal interest you pay (other than certain mortgage interest) is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. You can deduct up to $2,500 of student loan interest. The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions.




What are considered qualified education expenses for purposes of the student loan interest deduction?


For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items:

  • Tuition and fees;
  • Room and board;
  • Books, supplies and equipment; and
  • Other necessary expenses (such as transportation).
The cost of room and board qualifies only to the extent that it is not more than the greater of:
  • The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student; or
  • The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.




Can I deduct the costs associated with education for work?


You can deduct the costs of qualifying work-related education as business expenses if the education meets at least one of the following two tests:

  1. The education is required by your employer or the law to keep your present salary, status or job. The required education must serve a bona fide business purpose of your employer; or
  2. The education maintains or improves skills needed in your present work.
However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:
  • Is needed to meet the minimum educational requirements of your present trade or business; or
  • Is part of a program of study that will qualify you for a new trade or business.
You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.




Tuition & Fees: Can I deduct amounts I paid for tuition and fees?


Congress extended the availability of the tuition and fees deduction for calendar years 2018, 2019, and 2020. Do not claim the deduction for expenses paid after 2020 unless the credit is extended again. You may be able to take the deduction if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The deduction is based on the amount of qualified education expenses you paid for the student in the current year for academic periods beginning in the current year or beginning in the first 3 months of the following year. Generally, qualified education expenses are amounts paid in the current year for tuition and fees required for the student’s enrollment or attendance at an eligible educational institution. Required fees include amounts for books, supplies, and equipment used in a course of study if required to be paid to the institution as a condition of enrollment or attendance. It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. However, fees for personal expenses (described below) are never qualified education expenses. Qualified education expenses do not include amounts paid for the following:

  • Personal expenses. This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses.
  • Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student’s degree program or helps the student acquire or improve job skills.
For more information, see IRS Form 8917 (Tuition and Fees Deduction).




Books & Supplies: Can I deduct my expenses for books and supplies?


You cannot deduct expenses for book and supplies, but you can claim an education credit for qualified education expenses paid by cash, check, credit or debit card or paid with money from a loan. Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. You must pay the expenses for an academic period that starts during the tax year or the first three months of the next tax year. For the American Opportunity Tax Credit, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school. For example, the cost of a required course book bought from an off-campus bookstore is a qualified education expense. Expenses that Do Not Qualify Even if you pay the following expenses to enroll or attend the school, the following are not qualified education expenses:

  • Room and board (however, these fees are allowed for the student interest deduction);
  • Insurance;
  • Medical expenses (including student health fees);
  • Transportation; and
  • Similar personal, living or family expenses.
For more information, see the IRS's Qualified Education Expenses page.




Qualified Student Loan: What is considered a qualified student loan for purposes of the student loan interest deduction?


According to the IRS, a qualified student loan is a loan you took out solely to pay qualified education expenses (defined later) that were:

  1. For you, your spouse, or a person who was your dependent when you took out the loan;
  2. Paid or incurred within a reasonable period of time before or after you took out the loan; and
  3. For education provided during an academic period for an eligible student.
Loans from the following sources are not qualified student loans:
  • A related person; or
  • A qualified employer plan.





Tax Credits

What is a tax credit?


A tax credit reduces the amount of taxes you owe dollar-for-dollar. For example, if you owe $1,000 in taxes but claim a $1,000 tax credit, then your tax liability becomes $0. There are two types of credits: refundable and non-refundable. A refundable credit reduces your tax liability dallar-for-dollar and can result in a refund if your liability falls below zero. A nonrefundable credit still reduces your tax liability dollar-for-dollar but only to a minimum of $0, it cannot produce a refund.




Education Credits: Are there tax credits available to offset the costs of attending college?


Yes. Whether online, in-person, part-time, or full-time, higher education can be expensive. An education credit is a type of tax credit that helps subsidize the cost of higher education by reducing the amount of tax owed on your tax return. There are two types of education credits: the American Opportunity Tax Credit and the Lifetime Learning Credit. The American Opportunity Tax Credit (AOTC)

  • Worth a maximum benefit of up to $2,500 per eligible student;
  • Only for the first four years at an eligible college or vocational school;
  • For students pursuing a degree or other recognized education credential; and
  • Partially refundable (up to $1,000 of the credit is refundable).
Note, you cannot claim the AOTC if, as a single filer, your modified adjusted gross income (AGI) is greater than $90,000 ($180,000 if married filing jointly). The Lifetime Learning Credit (LLC)
  • Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify;
  • Available for all years of post-secondary education and for courses to acquire or improve job skills;
  • Available for an unlimited number of tax years;
  • This is a non-refundable credit (which means it can only help reduce your tax liability).
Note, you cannot claim the LLC if, as a single filer, your modified adjusted gross income (AGI) is greater than $68,000 ($136,000 if married filing jointly). General Eligibility To be eligible, either the taxpayer, spouse, or dependent needs to:
  1. Be enrolled in an eligible educational institution (i.e., a school offering higher education beyond high school); and
  2. Have paid qualified education expenses for higher education and received IRS Form 1098-T (Tuition Statement) from the eligible educational institution.
    • However, there are exceptions if a student has not received IRS Form 1098-T (see the answers to questions 18,19 and 20 on the IRS's Education Credits: Questions and Answers).
Note, you cannot claim either of these tax credits if someone else (e.g., your parents) claims you as a dependent on their tax return. You also cannot claim either credit if your filing status is married filing separately. Quick Eligibility Check Taxpayers can use the IRS's Interactive Tax Assistant tool to figure out if they are eligible for either of these two tax credits.





 
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