Determining Whether You Need to File a Tax Return

 

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 allow the student to receive a tax refund. Access the tool through the following link:

SCHOLARSHIPS & GRANTS

Nontaxable Portion of Scholarships & Grants

You may not be required to pay taxes on funds you receive in connection with a scholarship, a fellowship grant, or other grant. These Scholarships, fellowship grants, and other grants are tax-free if you meet the following two conditions:

  1. You attend an educational institution that maintains a regular faculty and curriculum, and 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:

  • 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 gran

TAX BENEFITS FOR EDUCATION

Education 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:

Frequently asked questions

General

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.




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


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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.





Education-related 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.




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.





Education Tax Credits

What is a tax credit?


A tax credit reduces the amount of income tax you may have to pay.




What is an education credit?


An education credit is a category of tax credit that helps subsidize the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may be entitled to receive a refund. There are two types of education credits: the American Opportunity Tax Credit and the Lifetime Learning Credit.




Who may claim an education credit?


There are additional rules for each credit, but you must meet all three of the following for either credit:

  1. You, your dependent or a third party pays qualified education expenses for higher education.
  2. An eligible student must be enrolled at an eligible educational institution.
  3. The eligible student is yourself, your spouse or a dependent you list on your tax return.
If you are eligible to claim the Lifetime Learning Credit (LLC) and are also eligible to claim the American Opportunity Tax Credit (AOTC) for the same student in the same year, you can choose to claim either credit, but not both. You cannot claim the AOTC if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. The law requires that both you and your qualifying student have a valid Social Security number or Individual Taxpayer Identification Number (issued before the due date for your tax return) in order to claim the AOTC.





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