College students are usually in a time of transition between being children and adults. They may be living away from home but still financially dependent on their parents. Or they may start earning their own income while they’re in school. Their taxes are in transition, too — some students can be claimed on their parents’ return, but others may want to file their own tax return, even if they aren’t required to do so. Here’s what college students need to know about filing taxes and how to make the most of some special tax benefits.
Do College Students Need to File a Tax Return?
It depends on their income and whether they had taxes withheld from their paychecks. Students who are single and earned more than the $12,400 standard deduction in 2020 are required to file an income tax return. That $12,400 includes earned income (from a job) and unearned income (such as from investments).
They must also file a return if their unearned income (including unemployment compensation, interest and dividends, and income as a beneficiary of a retirement plan) is greater than $1,100 or their self-employment income is greater than $400, says Mark Steber, chief tax information officer for Jackson Hewitt. For more information, see the IRS’ Tax Information for Students guide.
College students may still want to file a return even if they aren’t required to do so. “If wages are less than $12,400, the student should still consider filing to receive refunds from federal and state withholding taxes,” says Michael Trank, a CPA and personal financial specialist in Irvine, California. If income taxes were withheld from your paychecks, you can file a return and get money back. You can check your pay stub to see if you had federal income taxes withheld from your pay.
Do Your Parents Claim You as a Dependent?
Whether or not you can be claimed as a dependent on your parents’ tax return is based on your age, student status and who is paying the bills. “Generally, a parent can claim you as a dependent until age 19, but if you are a full-time student, they can claim you as a dependent until age 24,” says Brittany Benson, senior tax research analyst at the Tax Institute at H&R Block. There are also other requirements, including how much support your parents are providing for you. A full-time college student is generally a dependent if they’re under age 24 and don’t provide more than half of their own support, says Benson.
Part-time students who are 19 or older may not be a dependent. “If a child is going to school part-time, is over 19 and they are working and making more than $4,300, they are not a dependent,” says Steber. For more information, see IRS Publication 501 Dependents, Standard Deduction and Filing Information.
If the parents claim the student as a dependent, they may be eligible to take the American opportunity credit for eligible college costs, including tuition, books and supplies in the first four years of postsecondary education. The credit can be worth up to $2,500 for 2020. To qualify for the credit, the student must be enrolled at least half time and pursuing a degree or other recognized educational credential. Students who aren’t eligible to be claimed as a dependent on their parents’ return and meet other requirements may be able to take the credit themselves, says Steber.
Students who are in graduate school or who aren’t attending school at least half time may be eligible for the lifetime learning credit, which is worth up to 20% of eligible expenses, with a maximum credit of $2,000 per tax return. If the parents claim them as a dependent, the parents may be able to take the credit. Both credits have income limits and other requirements. See IRS Publication 970 Tax Benefits for Education. information.
What Tax Forms Do You Need?
You’ll file your federal income-tax return with a Form 1040, and you may need to include additional forms — such as Schedule C if you have self-employed income. You should have received W-2s reporting your income and any taxes withheld from full-time or part-time jobs, or 1099s reporting income from freelance work. You may also receive Form 1098-T showing the tuition you paid in 2020 and Form 1098-E reporting any student loan interest payments. If you have any investments, you may receive Form 1099s from your brokerage firm or bank.
Filing Taxes for Free and Affordable Help
College students who have a straightforward tax situation can generally file their taxes for free. Taxpayers whose adjusted gross income was $72,000 or less can file their 2020 federal income taxes for free through IRS Free File, which gives them access to free versions of popular tax software, such as TurboTax and other programs.
You may also be able to use other programs for free. For example, TurboTax offers a free edition for people with a 1040 return who don’t have to file additional schedules, such as for itemized deductions or self-employment income. You may also be able to use H&R Block’s free DIY online product and other tax programs.
If you want personal assistance, you may be able to get free tax help from a Volunteer Income Tax Assistance program, which may be available on campus or in your community. You can look up VITA sites in your area. You can also work with a tax preparation service, such as H&R Block, Jackson Hewitt or an independent tax preparer, either in-person or virtually depending on your location. You can check a tax preparer’s credentials by using the IRS’ directory of federal tax return preparers.
Smart Tax Move for Working Students: Contribute to a Roth IRA
If you’ve earned any income from working — even just a part-time job or freelance work — you can make another smart move: Contribute to a Roth IRA. You can contribute up to the amount you earned from working for the year, with a $6,000 maximum for 2020 and 2021, whether or not you file your own income tax return. You have until May 17, 2021, to contribute to a Roth IRA based on 2020 income.
Roth contributions aren’t tax-deductible, but the money grows without the drag of taxes and the earnings can be withdrawn tax-free after age 59 1/2, giving students a huge head start on their financial future. “It’s never too early to start saving for retirement,” says Trank.
Roth IRAs can be especially attractive to young investors because of their flexibility, says Rita Assaf, vice president, retirement and college products for Fidelity Investments. “The most attractive feature about Roth IRAs, especially for younger investors, is the ability to withdraw money before retirement.” You can withdraw your contributions without penalties or taxes at any time and for any reason.
“In addition, as long as five years have passed since your first Roth contribution, earnings from a Roth IRA can also be withdrawn federally tax-free and penalty-free, provided you use the money for specific reasons such as qualified higher education expenses (which can include college-related expenses), qualified first home purchases (up to $10,000) and certain medical expenses,” says Assaf.
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Update 04/02/21: This story was published at an earlier date and has been updated with new information.