College Students Pay Close Attention to Your Taxes This Year
- College students must make sure their taxes are up to date and filed correctly.
- College students could be eligible for two significant tax credits that they can claim on their taxes.
- If you are a college student, it’s a good idea to pay close attention to any new tax information that you may qualify for.
Students have to handle a load of work, but they must make sure their taxes are filed correctly. Many high school and college schools aren’t teaching their students about taxes, so it’s important to pay attention to any new tax information. With many people already receiving federal tax return refunds, it is essential to understand how income tax returns work.
In some cases, students aren’t required to pay taxes. For 2022, a student would only be required to file a tax return if their earned income is more than the standard deduction of $12,950. Unfortunately, many students are also claimed as a dependent on their guardian’s return, which means you are likely not eligible for a tax refund.
Despite your tax situation, it’s crucial for students to know that work-study and part-time jobs are taxable income. Students must file their tax returns by using a W-2 and 1040 form. An employer will give their employees a W-2 form to file their 1040 tax form.
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Tax Credits for College Students
There are two significant tax credits or tax breaks that college students can claim on their tax credits.
The American Opportunity Tax Credit
Some undergraduate students can claim the American Opportunity Tax Credit on the 1098-T tax form. However, the adjusted gross income must be under $80,000, and the maximum credit is $2,500.
According to the United States Department of Education, the 1098-T form is the Tuition Statement that your college or career school uses to report qualified tuition and related educational expenses to you and the Internal Revenue Service (IRS). You or your parent/guardian may be able to claim these expenses as education-related tax credits.
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Lifetime Learning Credit
Students may also be eligible for the Lifetime Learning Credit (LLC), a credit that can help pay for undergraduate, graduate, and professional degree courses. This includes college courses to acquire or improve job skills. Students' income must be below $90,000 to qualify for the tax credit. You must claim the LLC by completing the 8863 Form.
Other Things to Know About Your Tax Return
Some students find themselves in nontraditional situations, for example, being married. Married couples can file their tax returns jointly if they choose to. Students that received unemployment benefits may be another nontraditional scenario.
If any of these circumstances apply to you, it is important to discuss your options with a tax professional. A certified professional could shed more light on any free federal or state tax return options. A tax professional may also be able to file your return directly.
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Are Scholarships Taxable?
If you received a scholarship during the school year, it is important to note that scholarships are not taxable. Scholarships are tax-free money and do not need to be reported as income on your tax returns. This condition ONLY holds true when the scholarship money is used to pay for tuition.
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If you received scholarship money and decided to only use half of the amount towards paying off tuition, the portion that did not go towards school education costs has to be reported as taxable income. Therefore, before you spend the scholarship money you received, determine whether the funds will be used for tuition or personal expenses.
If you use the scholarship money for anything other than educational expenses, then you have an additional taxable income you have to report. This means that the scholarship amount is subject to taxes, and you may end up paying a higher tax amount because of the fact that you used your scholarship money for non-school-related expenses.
Why Knowing Taxes is Important
Although income tax is a rather boring subject, having a basic understanding of it can be beneficial when filing your taxes. For those who do not know how taxes work, it can be detrimental if they are incorrectly handled. For example, if you receive money that you have to pay taxes on, then you must put aside the respective portion that is owed to the government.
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If you fail to do so, then you will owe taxes to the government, more specifically, the IRS. When you owe taxes to the government, you must make sure that you pay by the deadline of April 18, 2023, for the upcoming tax season. If you fail to pay your owed taxes by this deadline, then the outstanding taxes will be subject to interest and penalties, which will only increase how much you have to pay.
How to Get Help with Taxes
Since not everyone will have the same tax knowledge, it is important to reach out to others when you are having trouble. Your parents can be a great resource as they may have tax advice or can refer someone who can help give some. Companies such as TurboTax and H&R Block provide tax advice and may have more in-depth tax information for students.
Talking to these companies, or one who provides a similar service, will help you get a better understanding of taxes. If you think that learning about taxes may be too time-consuming and not beneficial for you, then you can always get someone to do your taxes for you.
The Money Wrap-Up
Since high schools and colleges do not discuss taxes in their compulsory courses, young adults are struggling to determine how the U.S. tax system works. Those inexperienced with the American tax system could face implications since the IRS takes paying taxes very seriously. As a result, if your tax return is not done correctly, it could trigger an audit.
As no one wishes to be in a position where they unintentionally misreport their income, becoming familiar with taxes becomes a priority. Whether that be through educating yourself or consulting with a tax professional, becoming knowledgeable in the tax system has the possibility of saving you money for years to come, and who doesn’t want that?
Disclaimer: The information mentioned in this article regarding taxes should not be tax advice. If you have any questions regarding taxes, please do your own research or consult with a tax professional. CapWay is NOT responsible for any tax complications that arise based on the contents discussed in this article.
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