Student Tax, Education Tax Credit
Even if you are a student you may have to file a tax return in 2010 for the 2009
tax year. For example, if you were self-employed for some portion of the tax year
and earned more than $400.00 during that self-employment, you will have to file
a federal tax return and pay the necessary self-employment tax (Social Security
and Medicare). You may also be required to pay Medicare and Social Security tax
on tips that you did not report to your employer or if you worked for a church or
religious organization that was exempt from those taxes.
There are many forms of income that students often receive which qualify as
taxable income. Some of those include:
- Payment for services performed,
- Income earned through self-employment,
-
Income earned through investments, and
- Some scholarships and fellowships
Allowances received through the Reserve Officers’ Training Corps are tax-exempt,
but payments made over the summer qualify as taxable income.
Foreign students who are resident aliens may be subject to some of the same taxes
as U.S. citizens.
There are two major credits available for students to offset the cost
of education.
The American Opportunity Credit (formerly The Hope Credit)
- This credit applies for the first four years of post-secondary school education,
such as college or vocational school.
- You can claim up to $2,500 per eligible student, per year.
- The credit covers
100% of the first $2,000 of qualified tuition and related fees (books and other
required course materials), plus 25% of the next $2,000.
- 40% of the credit is
refundable, so you may receive $1,000 per eligible student as cash back even
if you owe no taxes.
- Each student applying for the credit must have been enrolled
at least half time for at least one academic period which began during the
tax year.
- The credit is phased out for individuals making more than $80,000 and
for married couples filing jointly who make over $160,000.
The Lifetime Learning Credit
- This credit applies to undergraduate, graduate, and professional degree courses,
and even post-graduate courses that help improve your job skills.
- The credit is available for all years of post-secondary education, and also for
adult and continuing education courses. There is no minimum enrollment.
- Your
credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay
during the year, totaling no more than $2,000 (per tax return, not per student).
-
The amount of the credit is gradually phased out if your income is between $48,000
and $58,000 ($96,000 and $116,000 if filing a joint return), and completely phased
out for incomes of $58,000 or more ($116,000 or more if filing jointly).
You cannot apply for both credits for the same student in the same year. If you
claim either credit, you cannot claim the tuition and fees tax deduction.
If you have graduated and started to pay back your student loan, you may be able
to deduct some of the interest paid on your student loans (including the one time
loan origination fee charged by your lender). Also, you may be able to claim a deduction
for qualifying tuition and fees paid during the tax year for you, yourself, or a
dependent.
There are certain scholarships and grants that fall under the category of taxable
income. Generally, there is a 14%-30% withholding on taxable grants, fellowships,
and scholarships.
Exception: The costs of obtaining a doctoral degree are not deductible.
More details on student tax credits and education deductions.