Students, Educators and Income Taxes
Important Student Loan Update: As of August 24, 2022, President Biden has unveiled the plan to cancel $10,000 - $20,000 in student loans. Keep up with tax news and get the details on this - this specific student loan forgiveness does not qualify as cancelled debt which is generally taxable income because a part of the American Rescue Plan Act makes sure any student loans forgiven through 2025 is nontaxable. Here are the key points:
- $20,000 may be forgiven for those with Pell Grants; $10,000 for those with only federal student loans.
- Taxpayers making under $125,000 annually or households making under $250,000 will qualify.
- The U.S. Department of Education will launch an online application in early October to apply if the department does not already have your income data; relief will come within 4-6 weeks of acceptance date.
- The Department of Education claims they already have 8 million people who they have data for which will allow them to issue the relief automatically; in other words, nothing is needed of the student loan holder. There will be an online application available to borrowers set up in October of 2022.
- Borrowers should apply before November 15th, 2022 - the payment pause of forbearance expires on December 31, 2022.
Educators, Teachers: See detailed teacher expense deductions you might qualify for on your 2021 Tax Return, including other deductions and tax credits.
Important: If you are submitting a Free Application for Federal Student Aid, or FAFSA, for the 2022-2023 schoolyear, you will need a copy of your 2020 Tax Return. To get a copy of your previous year return, you can sign into your eFile.com account and find it by following these simple instructions. Otherwise, refer to a physical or digital copy you may have kept or retrieve it from the IRS online. As a result of the Tax Cuts and Jobs Act of 2018, your 2020 Return reflects important changes and will be used to apply for your 2022-2023 FAFSA.
Student Income Taxes - Class 101
Most tax information for students will be reported on Form 1098-T - eFileIT. If you have income as a student and are not a dependent one someone's return, you will generally want to file taxes with this form to see if you qualify for any student-related tax credits or deductions. If you are claimed as a dependent, it may be beneficial to let your parent(s) or guardian(s) report your 1098-T on their taxes if you do not work as it would benefit them more.
Income and age determines whether a person has to or should e-file a tax return more so than a job title or education status as a student. We spare you from reading over all the detailed tax factors that stipulate if you should or should not prepare and file a return. Start the free and easy FILEucator tool below, answer a few simple questions, and you got the answer. Again, keep in mind that even if you don't have to file a tax return, you might want to file one as a young person or student, since you might get a much needed tax refund.
The average college tuition and fees for full time undergraduate students during academic year 2021-22 ranged from $10,740 for in-state public schools in comparison to $38,070 for private schools.
Below, find out how to file or e-file a return as a student. For detailed information regarding students and taxes, review IRS Tax Benefits for Education, courtesy of eFile.com.
Should I File my Own Tax Return as a Student?
You may wonder if you should still file your own tax return if you are claimed as a dependent student by your parents or somebody else. The short answer is yes, you can - see how to file a return as a dependent. When you prepare and e-file your own tax return on eFile.com, simply indicate (on the Name and Address screen) that somebody claims you as a dependent on their tax return. This will be reflected on your IRS Form 1040 or 1040-NR. During the tax interview on the eFile app, you will be prompted to answer this question which will allow it to be reported on your return along with other tax information you enter.
There are conditions that must be met in order for your parents to claim your interest and dividend income (including capital gains distributions) on their tax return, which would mean you would file with your parents. All of the following conditions must be met for them to do so:
- You were under 19, or under 24 as a full-time student, by the end of the tax year.
- The only income you receive is from interest and dividend payments, including payments from the Alaska Permanent Fund.
- Your gross income was under $4,300 for Tax Year 2021.
- You are required to file a return if you weren't making this election. See FILEucator above.
- You are not filing a joint return.
- No estimated tax payment was made for this year and no tax over payment was made from the previous year or amended tax return in your name or Social Security Number.
- No federal income tax was taken out of your income under the backup withholding rules.
Visit this page for more information on whether or not to file a tax return as a dependent. This information will be reported by the parent(s) on Form 8814 - eFileIT.
However, if you, as a student, have unearned income that totals more than $2,200 and want to claim it on your own tax return, eFileIT Form 8615 along with your Form 1040. Prepare your taxes with eFile.com and we will help select and complete this form along with the rest of the applicable forms for your 2021 Return.
Parents Who Qualify to Make the Election
If you are a parent of a student and you're not sure if you qualify to make this election, there are simple rules at place. You, as a parent, qualify if you fall into any of the following situations:
- You are filing a joint tax return for 2021 along with the child's other parent.
- You were married to the student's other parent during 2021, but are filing separate returns, and you had the higher taxable income.
- You were unmarried during 2021, treated as unmarried for the purpose of taxes, or were separated from the other parent by divorce of separate maintenance decree. You must be the custodial parent - the child must have lived with you most of the year. If you remarried, you can make this election on a joint return with your new spouse. Otherwise, if you file separately, you must have higher taxable income than your new spouse.
See more information on Tax Rules for Dependents via IRS Publication 929.
Foreign Students and Scholars
Depending on your immigration status, you might have to file Form 1040-NR and/or Schedule NEC, Tax on Income Not Effectively Connected With a U.S. Trade or Business, instead of the regular Form 1040.
See a high level overview tax preparation for foreign students and scholars.
Currently, you can only e-file the regular 1040 or 1040-SR form, not the 1040-NR. Click on the links and complete, sign before you download, print, and mail them. Here are useful instructions for foreign students and scholars regarding how to file, how to determine exemption, your status as a resident alien or nonresident alien, and information on countries with U.S. Treaties for students or teachers.
Filing or e-filing as a foreign student follows a few general rules. Filing is required if a nonresident alien student or scholar has:
- A taxable fellowship grant or scholarship,
- Income that, under a tax treaty, is partially or totally except, and/or
- Any other form or taxable income.
Filing may not be required if a nonresident alien student has income only from:
- Foreign sources,
- Interest income from a U.S. bank, credit union, insurance company, or savings and loan institution,
- An investment which generates portfolio interest - see Publication 519, U.S. Tax Guide for Aliens.
- Tax-free scholarship or fellowship grant income, or
- Any other form of nontaxable income.
If you are a foreign student with nonresident status, read this section about nonresident tax returns and Form 1040-NR. If you lived or worked abroad, find information on foreign earned income.
Taxable and Nontaxable Income
We have dedicated a section on taxable income and a section on tax free or nontaxable income. If you have generated income that is not listed on either of these pages, contact an eFile.com Taxpert to get answers to your questions regarding specific income and tax circumstances.
Below are a few taxable income types specific for students. Keep in mind that this is not an all inclusive list, but the links above will provide more specific information.
Taxable Student Income
- Pay for services performed, like wages, salaries, tips, or ROTC active duty pay (for example, pay that you received during advanced camp during the summer - but not ROTC subsistence allowances). Details on military-related taxable and nontaxable income.
- Self-employment income that includes, but is not limited to: summer jobs, tips, lawn mowing, babysitting, or newspaper delivery. See tax saving tips for summer when you perform work between semesters.
- Scholarship money you receive for incidental expenses, including room, board, and travel is taxable in most cases.
- Cash payments you obtain for teaching, research, and other services as a condition of receiving financial aid.
- If your scholarship exceeds the total tuition, fees, supplies, equipment, etc., you may have to pay tax on that portion.
Nontaxable Student Income
- Financial aid (scholarships, fellowship grants, and teaching assistantships) that pay for higher education might be "free" to you, but you might have to pay taxes on this type of income. Generally, a scholarship for tuition expenses and fees is tax-free, but the payments for room and board are taxable income to you. According to the IRS, students must meet the following two conditions for scholarships or fellowship grants to be tax-free:
- They are a candidate at an educational institution with a regular faculty and curriculum. The organization (school, college, university) must have a regularly enrolled body of students in attendance.
- The financial aid funds received is for tuition and fees required for enrollment, as well as additional class fees, books, supplies, and equipment needed for courses.
- Financial aid for services that are required by the Armed Forces Health Professions Scholarship and Financial Assistance Program or National Health Service Corps Scholarship Program are tax free.
- Some payments by an employer to you in the form of an education or tuition-assistance program. You can exclude up to $5,250 of this education assistance from your income. The following education expenses qualify: tuition, books, fees and similar payments, supplies, and equipment.
If you e-file your 2021 Taxes with eFile.com, you don't need to worry about whether or not your income is taxable or not. As you complete the tax interview, the eFile app will determine what income is taxable and what isn't.
Tax or Income Reporting Forms
See a full list of 2021 IRS forms and schedules. When you prepare your 2021 taxes with eFile.com, you don't need to recognize or choose which of these apply to you. The eFile app helps you select and complete the necessary forms for your specific 2021 Return. Here are important forms and documents to keep track of as a student:
- eFileIT: Form W-2. Find wages and salaries as part of a teaching assistantship or fellowship.
- eFileIT: Form 1098-T. Find scholarships, fellowships, and grants received plus qualified tuition expenses. You may notice that the amount shown on Form 1098-T is different than the amount you actually paid. That’s because some of your related costs, such as textbooks, may not appear on the form for the given tax year. However, you still may be able to claim the costs as part of the education tax credit.
- Hold on to receipts for textbooks, supplies, and equipment since they will not be reported on Form 1098-T.
In summary, when considering a school or university, you should ask the following questions when it comes to financial aid:
- Is this a fellowship or scholarship payment for a service (i.e. research)? How much is the actual scholarship? Which tax documents should you expect?
- Calculate and compare the actual cost of different schools and programs. For example, the total cost of attendance minus total aid equals your net cost. Plus, factor in potential tax payments, if any.
How to File a Tax Return as a Student
1. Find out if you, as a college student, qualify as a dependent on your parent's or somebody else's tax return.
Start the DEPENDucator
- If you qualify, you can be listed as a dependent on their tax return and your income and deductions would be reported on that return.
- Even if you qualify, you can still prepare and e-file your own tax return while being listed on somebody else's return as a dependent.
2. If you plan to prepare and file your own tax return, start on eFile.com and the app will guide you through via simple tax questions. You will know your tax refund or taxes owed before you can complete and eFile your federal and state tax return. You don't have to worry about which form or schedule to pick; eFile.com does it all for you.
3. To international and foreign students with nonresident alien status: The IRS has special rules for foreign and international students, scholars, teachers, and exchange visitors. The rules largely depend on the immigration status of the person (resident alien, nonresident alien, dual status alien) and apply to taxable income and tax withholding. The assumption here is that your status in the United States is that of a resident alien by holding a certain visa status. Beyond that, the rules for filing a tax return is based on the income an international student generated in the U.S. In addition, based on the country of your origin as an international student, you need to check if there is a double taxation agreement between your country and the U.S.
If you are in the United States on a F-1 student visa and you don't have a green card or don't satisfy the substantial residence requirement, you usually file your federal tax return as a nonresident alien. Unless you elect to be treated as a resident alien for federal tax purposes, you cannot claim an education credit for any part of the tax year. If you are a U.S. nonresident alien, you should FileIT Form 1040NR if you do not have dependents or children etc.
Currently, you cannot e-File Form 1040-NR on eFile.com. Click on this link to complete the form 1040-NR and we will assist you in completing the form; contact one of our Taxperts here.
How to Save Money on Taxes as a Student or Parent
There are many opportunities to save money during the tax year as a full or part-time student. Whether you're pursuing an education at a university or graduating high school, check out these different tax tips and keep more of your hard earned money:
Continue on to the Student or Education Tax Deduction section of your income taxes. Prepare to prepare with eFile.com to be ready to file by April 18, 2022.
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