For college students and recent graduates, filing taxes can feel overwhelming. But even though it may be difficult, filing taxes is important. There are many tax credits you may be able to take advantage of as a college student or recent college grad. This includes the Student Loan Interest Deduction, American Opportunity Tax Credit (AOTC) and Lifetime Learning Tax Credit.
Fortunately, most college students and recent college graduates have simple tax returns and can use free filing tools to file cheaply and easily. However, keep in mind that some free file tools offer free federal filing, but charge for state taxes. If you live in a state with income tax, that could affect the software you choose.
In some cases, it’s not clear if your filing is actually free. For example, some services don’t tell you whether you qualify for a free tax return until you reach the end of the tax return questionnaire. Others may try to sell you on additional options, often pitched as a way to get a bigger refund. Before you start filling out your taxes, it’s important to check to make sure you’re eligible to file for free.
Options for Filing Taxes for Free
- You can use the IRS Free File tool, which allows you to file your taxes yourself at no cost if you earned less than a maximum amount.
- If you need a hand, the Volunteer Income Tax Assistance (VITA) program offers free tax help to people who make $56,000 per year or less. Find a VITA site near you.
- Many colleges partner with VITA to offer students free tax assistance. Check with your college or nearby colleges to learn more.
- There are several services listed below that offer free tax return filing. Each service has different requirements for free filing, so check those requirements before you start. For example, Jackson Hewitt offers free federal and state filing if you have no children or dependents, have a joint income below $100,000 and take the standard deduction. Many programs limit free filing to people who use the online self-service version of their tax preparation tools.
Free Filing for Both Federal and State Taxes
Free Filing for Federal But Charge an Additional Cost for State
Pro Tip: If you have student loan debt and receive a tax refund, put that money toward your debt. And check out 70 ways to pay off student loans faster.
Do College Students Have to File Taxes?
Filing taxes can be a time-consuming and annoying process. Yet while most people have to put in the effort to file, not everyone is required to do so. If you’re a student, there’s a chance that you aren’t required to submit a tax return.
For example, independent students who meet all of the following requirements do not have to file taxes.
- You’re under 65
- You don’t have any special circumstances that require that you file (such as running a small business)
- Your earnings are under the standard deduction for your filing status
2020 Standard Deduction
Married, Filing Separately
Married, Filing Jointly
Head of Household
If your parents claim you as a dependent, you must file a tax return if your total earned income is greater than the standard deduction. In 2020, the standard deduction for most dependent students is the greater of $1,100 or the sum of $350 plus the amount of their earned income (up to $12,400).
But even if you aren’t required to file taxes, filing is usually a good idea. Most employers will deduct income taxes from your paychecks. Even if you don’t make enough that you’re required to file, you may be eligible to claim a refund from the government.
Filing a tax return also means you may be able to claim the many tax benefits that the government provides to students, such as tax credits and deductions based on being in college.
There is no penalty for filing taxes when you aren’t required to, but there may be penalties if you fail to file when required. So, if you’re unsure, you should file just to be safe.
What Happens if You Don’t File Taxes?
It’s important that you file your taxes if you’re required to file. Failing to file can lead to hefty penalties.
If you don’t file your taxes by the April 15th deadline, the IRS will charge a penalty equal to 5% of the amount you owe for each month that the return is late, up to a maximum of five months. The minimum penalty for filing more than 60 days late for 2020 is $435.
If you file your taxes but fail to pay the amount owed, the IRS charges a penalty of 0.5% of the amount due each month, up to a maximum penalty of 25% of the amount due.
The good news is that these penalties only apply if you owe money to the IRS. If the IRS owes you a refund, there typically aren’t penalties for failing to file, you simply won’t get the money the IRS owes you.
There are a few ways to avoid these penalties. For example, you can file for an extension, which gives you more time to file your taxes. If you don’t file for an extension but still file late, you can plead your case to the IRS if there are extenuating circumstances explaining the missed deadline, such as a stay in the hospital that stopped you from preparing and filing.
Students who fail to file will miss out on tax incentives offered by the government to students. On top of the above penalties, failing to file could impact your financial aid in the next school year.
If you report different information on your tax return or your FAFSA, or don’t file a tax return when your FAFSA indicates that you should have, your school may notice the conflicting information.
If this happens, you won’t be eligible to receive financial aid until you resolve the conflicting information, which means filing a tax return and paying any penalties.
Tax Credits and Deductions for Students and Recent Graduates
One of the many reasons students should file their taxes is that the government offers tax credits and deductions for qualifying students. Some of these programs let you reduce your tax bill by reducing your taxable income. Keep in mind, however that the IRS does not allow double-dipping when it comes to education tax benefits. Different expenses must be used to justify each deduction or credit.
Others are tax credits that you can use to pay your tax bill or receive as a tax refund.
Student Loan Interest Deduction
The student loan interest deduction is a tax benefit that applies to current college students and graduates who have student loan debt.
Requirements for the student loan interest deduction:
- You paid interest on a qualifying student loan
- You were enrolled in school on at least a half-time basis
- There is a legal obligation for you to make those interest payments
- Not filing as married, filing separately
- No other taxpayers claim you or your spouse as a dependent
- Your Modified Adjusted Gross Income (MAGI) falls below a threshold that changes yearly
If you qualify, you can deduct the lesser of $2,500 or the amount you paid in interest from your taxable income.
The student loan interest deduction reduces the adjusted gross income on your federal tax return. You don’t have to itemize your loan interest payments to claim the deduction.
American Opportunity Tax Credit
The American Opportunity Tax Credit is available to independent students and parents of dependent students.
To qualify for the credit, students must meet these requirements:
- Be pursuing a degree or other recognized educational credential
- Enrolled in school on at least a half-time basis for one academic period (such as a semester)
- Not have completed four years of higher education at the start of the tax year
- The American Opportunity Tax Credit or the Hope Scholarship Credit is limited to four tax years per student
- No felony drug convictions by the end of the tax year
- Your Modified Adjusted Gross Income (MAGI) falls below a specified threshold
- You are not claiming the Lifetime Learning Credit for the same tax year
Taxpayers who meet these requirements may claim the credit, or a portion of the credit, based on their income.
In 2020, single taxpayers may claim the full credit if their Modified Adjusted Gross Income (MAGI) is $90,000 or less. The credit phases out completely at a MAGI of above $90,000. Married taxpayers may claim the full credit with a MAGI of $160,000 or less, with it phasing out completely at a MAGI of above $180,000.
The credit can cover up to $2,500 of your tax liability each year. You receive a credit for 100% of the first $2,000 paid toward education each year and 25% of the next $4,000 paid. If the credit reduces your tax liability to $0, you can receive 40% of the remaining amount as a tax refund.
Lifetime Learning Tax Credit
The Lifetime Learning Tax Credit can reduce your tax bill by up to $2,000 and applies to people who pay for tuition or undergraduate, graduate, and professional education. You can claim the Lifetime Learning credit every year that you qualify.
A student must meet these requirements in 2020 to qualify:
- You or your dependent must pay qualified education expenses for higher education
- The eligible student must be enrolled at an eligible institution (college, university, trade school, or other forms of higher education)
- The eligible student is you, your spouse, or your dependent
- Single filers must have a MAGI of $58,000 or less for the full credit (fully phased out at incomes above $68,000)
- Married filers must have a MAGI of $116,000 or less for the full credit (fully phased out at incomes above $136,000)
- You are not claiming the American Opportunity Tax Credit for the same tax year
If you qualify, you can claim 20% of the amount paid toward qualifying expenses, up to a credit of $2,000. However, the Lifetime Learning Tax Credit is not refundable.
Note: For tax year 2021, the income limits for the Lifetime Learning Credit will increase to match the income limits for the American Opportunity Tax Credit.
Tuition and Fees Deduction
The tuition and fees deduction allows taxpayers to deduct up to $4,000 spent on education from their taxable income. Like the student loan interest deduction, this deduction is an above-the-line exclusion from income. Likewise, you can claim the Tuition and Fees Deduction even if you don’t itemize. Keep in mind that the Tuition and Fees Deduction has been repealed for tax years after 2020.
Qualified expenses for this deduction include:
- Tuition and fees
- Required textbooks and supplies
- Qualified expenses paid with student loan proceeds
Some non-qualifying expenses include:
- Room and board
- Medical expenses
- Expenses paid with tax-free scholarships
- Expenses paid for with tax-free earnings from 529 plan distributions
Eligibility requirements in 2020:
- Modified Adjusted Gross Income under $65,000 (the maximum deduction is halved for MAGIs between $65,001-$80,000)
- The education expenses were incurred at a qualifying institution
- The taxpayer isn’t listed as a dependent on someone else’s return
- Cannot file as married, filing separately
- The taxpayer isn’t claiming the American Opportunity Tax Credit or Lifetime Learning Tax Credit
- No other taxpayer claims the above credits for the same expenses
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a refundable tax credit given to people who have small amounts of earned income in a tax year. For example, students who work part-time may qualify for the EITC if they meet certain requirements.
Who qualifies for the EITC:
- Cannot file as as married, filing separately
- Have investment income under $3,650
- Have earned income and Adjusted Gross Income (AGI) under limits based on filing status and number of qualifying children
Number of Qualifying Children
3 or more
Single, Head of Household or Qualifying Widow(er)
Married, Filing Jointly
The maximum credit amount will depend on the number of children you have.
Number of Qualifying Children
3 or more
While you may not like filing your taxes, it’s something you have to do every year.
And remember there are tax benefits available for college students that could save you money. It’s important to prepare your tax return carefully so that you can take advantage of these opportunities.