Tax Deductions for Students
Being a full-time student doesn't mean you don't have to file a tax return or report your income. You may owe taxes if you didn't have enough withheld during the year. Even if you're not required to file a return, you should, as you may be able to collect a refund of taxes you overpaid. The Earned Income Tax Credit is refundable, even if you didn't pay taxes, and you may qualify.
Many students hold summer jobs or part-time jobs to help with expenses from school. All income, including wages and tips, is taxable. You should receive a Form W-2, Wage and Tax Statement, from your employer by the end of January. This will document your wages, salaries, commissions and withholdings, including Social Security and Medicare. If you don't work for a specific employer, but hold odd jobs like mowing lawns, you are considered self-employed and still responsible for reporting your income.
If you receive distributions from a qualified education program, you'll receive a Form 1099-Q, Payments from Qualified Education Programs. Earnings and withdrawals from Coverdell ESA accounts and other tuition programs aren't taxed if used for higher education.
Scholarships, fellowships and Fulbright grant income don't have to be included in your income. This covers money used for expenses such as tuition, books, supplies and related equipment necessary for your degree. Room and board, travel expenses, and clerical costs have to be included in your income, as they are not exempt. Any awards received when you are not seeking a degree are taxable. You'll get an additional W-2 reporting the scholarship amount that is taxable. Pell Grants and Supplemental Education Opportunity grants aren't taxable as long as they are used for tuition and expenses.
Your tax liability can be reduced by certain qualified expenses, such as tuition, as long as the expenses weren't paid with non-taxed money. Additionally, certain education credits are available, including the Lifetime Learning Credit and the American Opportunity Credit. Be sure to check your eligibility for these important credits. You will receive a Form 1098-T, documenting the amount of tuition payments you made during the tax year.
Once you graduate, student loan payments and relocation expenses may be deductible. You can deduct up to $2,500 of interest on your student loans, reported on Form 1098-E, Student Loan Interest Statement, as long as you are actively making payments.
If you relocate for a new job, some of your expenses that aren't reimbursed by your employer may be deductible. Expenses that may be deductible include:
- Transit and storage expenses for your personal belongings
- Travel costs, including overnight accommodations. If you use your own car, you have the option of either calculating your actual expenses, or taking the standard mileage rate of deduction
- Parking fees and tolls
Maintenance, repairs, and insurance fees are not deductible. Also, be sure you keep all receipts to document your expenses in case of an audit.
