College is typically a place where students transition to adulthood. They may be living away from home but still financially dependent on their parents or they may be earning their own incomes while they’re in school.
Their taxes are in transition, too: Some parents claim students on their returns and some students file their own taxes.
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?
The answer depends on their incomes and whether they had employers withhold taxes from their paychecks.
Students who are single and earned more than the $12,950 standard deduction in tax year 2022 must file an income tax return. That $12,950 includes earned income (from a job) and unearned income (like investments).
They must also file a return if their unearned income (including interest and dividends, unemployment compensation and income as a beneficiary of a retirement plan) is greater than $1,150 or their self-employment income is more than $400, according to Mark Steber, chief tax information officer for Jackson Hewitt Tax Service. For more insight, visit the IRS Tax Information for Students guide.
College students may still want to file a return even if it’s not a requirement.
“If wages are less than $12,950, the student should still consider filing to receive refunds from federal and state withholding taxes,” Michael Trank, certified public accountant and personal financial specialist in Irvine, California, says.
In other words, if students had their employers withhold income taxes from their paychecks, they can file returns and get refunds.
Do Your Parents Claim You as a Dependent?
Whether your parents can be claim you as a dependent is based on your age, student status and who’s 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,” Brittany Benson, senior tax research analyst at The Tax Institute at H&R Block, says.
There are also other requirements, including how much support your parents are providing. A full-time college student is generally a dependent if they’re younger than 24 and don’t provide more than half their own support, Benson says.
Part-time students who are 19 or older might not be dependents.
“If a child is going to school part time, is over 19 and they are working and making more than $4,400, they are not a dependent,” Steber says.
For more information, see IRS Publication 501 Dependents, Standard Deduction and Filing Information.
Parents Might Be Eligible for the American Opportunity Credit
If your parents claim you as a dependent, they may be eligible to take the American opportunity credit during your first four years of postsecondary education. This includes eligible college costs like tuition, books and supplies.
The credit can be worth up to $2,500 for tax year 2022. To qualify, the student must be enrolled at least half time and pursuing a degree or other recognized educational credential.
Students whose parents aren’t able to claim them as dependents but who meet other requirements may be able to take the credit themselves, Steber says.
You or Your Parents May Be Able to Take the Lifetime Learning Credit
Students 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 return. If your parents claim you as a dependent, they may be able to take the credit.
[Read: A Guide to Educational Tax Credits and Deductions.]
The IRS increased the income limits for the lifetime learning credit to match the American opportunity credit, Mark Luscombe, principal federal tax analyst with Wolters Kluwer Tax & Accounting, says.
To claim the full credit, your modified adjusted gross income must be $80,000 or less if you’re filing single or as head of household, or $160,000 or less if you’re married filing jointly.
You can claim a partial credit if your MAGI is more than $80,000 but less than $90,000 if you’re filing single or as head of household, or more than $160,000 but less than $180,000 if you’re married filing jointly.
For more information, visit IRS Publication 970 Tax Benefits for Education.
What Tax Forms Do You Need?
U.S. residents file federal income tax returns with Form 1040, but you may need to include additional forms like Schedule C and Schedule SE if you have self-employed income.
You should receive W-2s from your full- or part-time employer(s) reporting your income and any taxes they withheld — or 1099s reporting income from freelance work or investment brokerage firms or banks.
You may also receive Form 1098-T showing the tuition you paid in 2022 and Form 1098-E reporting any student loan interest payments.
How to File Taxes for Free
If you’re in college, money is likely tight. If you have a straightforward return, you can generally file your taxes for free.
Taxpayers with adjusted gross incomes of $73,000 or less can file their 2022 federal income taxes through IRS Free File, which offers access to free versions of popular tax software.
If you have a simple return, you may also be able to use other programs for free, such as some TurboTax and H&R Block versions.
If you want personal assistance, you may be able to get free tax help from the IRS Volunteer Income Tax Assistance program, which might be available on campus or in your community.
The program aims to provide assistance to those who make less than $60,000 per year, have disabilities and/or limited English-speaking skills. You can look up VITA sites in your area by using the IRS locator tool.
You can also work with a tax preparation service, such as H&R Block or Jackson Hewitt Tax Services. Or you might consider consulting an independent tax preparer — either in person or virtually.
You can check a tax preparer’s credentials by using the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.
[Read: How to File Taxes for Free.]
Smart Tax Move for Working Students: Contribute to a Roth IRA
If you’ve earned any income from working, consider contributing to a Roth IRA.
If you’re under 50, you can contribute up to $6,000 from income you earned during tax year 2022 — whether or not you file your own return.
Most people have until April 18, 2023, to contribute to a Roth IRA based on tax year 2022 income. The IRS will be increasing contribution limits to $6,500 for 2023 income.
Roth contributions aren’t tax deductible, but the money grows tax free and you can withdraw earnings tax free after you reach 59 1/2.
Roth IRAs can give students huge head starts on their financial futures. “It’s never too early to start saving for retirement,” Trank says.
Roth IRAs are Flexible, Which Benefits Students
Roth IRAs can be especially attractive to young investors because of their flexibility, Rita Assaf, vice president, retirement and college products for Fidelity Investments, says.
“The most attractive feature about Roth IRAs, especially for younger investors, is the ability to withdraw money before retirement,” she says.
You can also 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,” Assaf says.
Soon, you’ll also be able to roll over unused money from a 529 college-savings plan into a Roth IRA.
“With the recent passing of the SECURE 2.0 Act, 529 plan assets can be rolled over to a Roth IRA for the beneficiary starting in 2024,” Assaf says.
“The rollover will be subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000. This is an attractive option for many, as it not only removes some of the barriers to saving for higher education, it allows for that education savings to now go toward a Roth IRA for the same beneficiary, giving them a head start for retirement,” she adds.
More from U.S. News
4 Benefits of Filing Taxes Early
How to Avoid IRS Tax Refund Delays in 2023
Tax Filing Tips for College Students originally appeared on usnews.com
Update 02/28/23: This story was published at an earlier date and has been updated with new information.
