Tax Benefits for College Students and Parents
Did you know you can take advantage of special tax breaks just for college students and their parents? These benefits come in the form of tax credits and deductions when you file your income tax return. What’s the difference? A credit reduces the amount of income tax you have to pay. A deduction reduces the amount of your income that is taxed, which also typically lessens your tax bill. In other words, you could get a bigger tax refund.
Filing Your Taxes
Let’s back up a bit and start with the basics of filing your taxes. If you’re wondering if you should bother filing because you only work over the summer or a few hours part-time during the school year, the answer is YES! You aren’t required to file if your income is under $12,550 for tax year 2021, but you may be able to take advantage of those credits and deductions we mentioned.
Before you start, ask your parents if they will be claiming you as a dependent. Typically your parents can claim you as a dependent if they provide more than half of your support, which is often the case for college students. If they plan to claim you on their taxes, you will need to answer “yes” on your return when you are asked if someone else can claim you as a dependent.
Next you’ll need to gather your W2s and a list of your college expenses (tuition bills, credit card bills from textbooks, etc.) You can file with a paper form or online – the IRS offers “Free File” options. It might be a good idea to sit down with your parents while you complete your return in case you have any questions, especially if this is the first time you’ve filed your own tax return.
Below are some of the education credits and deductions that may be available to you or your parents:
The American Opportunity Credit
Allows students to claim up to $2,500 of college expenses for their first four years of post-secondary education. This includes tuition, fees, textbooks, supplies and other equipment. Learn more about The American Opportunity Credit.
The Lifetime Learning Credit
Allows students or parents to claim a credit of up to $2,000 for qualified education expenses. There is no limit on the number of years this credit can be claimed, but you can only claim this or the American Opportunity Credit. The Lifetime Learning Credit may be useful to graduate students or those who are not working toward a degree. Learn more about The Lifetime Learning Credit.
Student Loan Interest Deduction
Once you are making payments on a qualified student loan (usually after you graduate), there is a special deduction allowed for the interest you’ve paid on your loan in the past year. Your lender should provide a statement in the mail or electronically each January that outlines the interest you’ve paid. This deduction can reduce the amount of your income subject to tax by up to $2,500.
If you are beginning to pay back your Student Choice loan through your credit union, please log in to your UAS account where you’ll find all your repayment information. If you still have questions, or you’re not sure if you’re eligible for these credits and deductions, you can use the IRS’s Interactive Tax Assistant to find out if you may be eligible. You can also read the full descriptions of the credits and deductions, including income limits, on their website.
For specific tax advice, contact a tax professional.