Filing taxes is an essential responsibility that students need to manage once they start working, receive financial aid or handle student loans. Here is a tax guide to help students understand when and how to file taxes, especially before Tax Day.
Form terminology
Taxes are filed using a series of forms. First is the W-2 form, which is the standard form employers will use to report how much you earned and how much tax was withheld.
The second is a 1099 form which is used when working as a freelancer or earning income from a side gig.
The final form is a 1098-T form that is specifically for students who have paid for tuition or received scholarships. This form can help students see if they qualify for education-related tax credits.
Who needs to pay taxes?
The first thing to remember is that everyone's income is basically taxable, said finance assistant professor Ives Machiz. Employers report your earned income to the Internal Revenue Service, which is why you receive a W2 or 1099 form.
When you receive a paycheck, you do not receive the full amount. Some goes to Social Security, which will not come back, and some of it goes toward federal income taxes, Machiz said.
A tax return reconciles what was taken out of your check and what you actually need to pay. Refunds are given when more money was taken out earlier in the year than what you owe. If you file a return and find out you underpaid then you owe some taxes, Machiz said.
For those under the age of 65 and single, a gross income of $14,600 or more is the threshold that requires filing, according to the IRS website. It is crucial to check your status to determine if you need to file taxes.
If your parent or another person can claim you as a dependent on their tax return the income threshold for single filers is $14,600 or unearned income over $1,300, according to the IRS website.
Filing taxes as a student
There are a few ways to file taxes. First is online filing, websites such as Turbo Tax, H&R Block and Jackson Hewitt offer step-by-step guides and services to file.
The next is IRS free file, a program where taxpayers file online using guided tax preparation software at no cost.
The final option is seeking professional help via a service. Here are some tips to ensure you are trusting a certified expert with your personal information.
Deductions and credits for students
Tax credits and deductions can lower the amount of taxes you pay for the year. A deduction reduces your taxable income while a tax credit reduces your taxes or adds to your refund.
There are a couple of different education tax credits that you can receive a deduction for, including student loan interest, Machiz said.
This interest on student loans makes it look like your income is lower, from there you can file a T-1098 form and a form from your school for any eligible tuition expenses, that could lead to a tax credit, Machiz said.
An important tax credit to be aware of is the American Opportunity Tax Credit. This is a credit for qualified education expenses paid to an eligible student within the first four years of higher education, according to the IRS website.
The maximum annual credit you can receive via AOTC is $2,500 per eligible student. If this credit reduces the tax you owe to zero, you can have up to 40% of any remaining amount of the credit (up to $1,000) refunded to you.
Even after graduation, if you continue to pay off student loans, the interest deduction can still apply. This means you can keep saving on taxes while you are working to pay off your loans, Machiz said.
Mistakes to avoid for students
A common mistake Machiz encounters is that students who earn under the threshold don't file for their eligible returns. If you've had money withheld, you should certainly think about filing to get your refund and not leave money on the table, Machiz said.
Another mistake, Machiz said, is when students start working full time, they often do not file any taxes and begin to accumulate tax debt with the IRS. This can come from a fear of not having enough money to pay for it immediately. For situations like this the IRS will let you set up a payment plan, Machiz said.
The final mistake is how people use the tax system as a savings plan, Machiz said. People will purposely have too much money withheld and say "When I get my refund I'm going on vacation."
"Why would you give somebody $3,000 to hang on to and then get it back later and spend it?" Machiz said. "I'd rather have the money in my pocket, put it in the savings account and earn a little bit of interest."
Taxes can feel overwhelming but there are countless resources students can turn to for help. The IRS deadline for filing is April 15 but you may request an extension until Oct. 15.
Edited by Senna James, Sophia Ramirez and Natalia Jarrett.
Reach the reporter at nrodri74@asu.edu.
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Natalia is a sophomore studying journalism and mass communication with a minor in creative writing. This is her second semester at The State Press.
