Millions of Americans are about to commence the yearly ritual of doing their taxes and reporting to the IRS how much they made in 2021 and figuring out if they are due for a refund. For many college students, this year is the first time they will be filing taxes, which can be an intimidating task. Here’s what first-time filers need to know.
1. Do you need to file a return or not?
The Federal tax filing season began on Jan. 24 and runs until April 18. Whether one needs to file taxes or not is determined by how much they made during the previous year. According to H&R Block’s website, “The minimum income for single people under 65 years old to file taxes is $12,550. If your income is below this amount, you do not need to file for a return.”
2. Check your dependency status
First-time filers need to know if their parents are claiming them on their tax returns, which is also known as being claimed to be a dependent or independent. “There are two ways to be a dependent of another taxpayer,” said Hunter Throckmorton, CPA at Throckmorton CPA. “If you’re a qualifying child of another taxpayer, or you are a qualifying relative of another taxpayer.” Examples of a qualifying relative, according to the IRS include a child, stepchild, brother, sister or parent.
Your age, student status and who provides your monetary support are factors in determining your status.
“If you are not going to be on your parents’ return, then you may want to look at the IRS website,” TJC Accounting Professor Jennifer Coon said. You will still need to file if you are a dependent who makes the income requirements.
Every individual’s situation is different, and there are many resources online to help determine your dependency status. You can look up the IRS’s Dependency Test on irs.gov.
3. Research what forms you’ll need
Form 1040 – You’ll file your taxes with a Form 1040. This is where you’ll report your tax information including income, tax deductions, and the amount you will be refunded or owe.
W-2 – This is the form employers send to show how much you’ve earned over the past year. It will also show the total amount of taxes the government has taken out for things like Social Security benefits, state and federal income taxes, and Medicare taxes.
1099s – According to NerdWallet, a 1099 is a record that an individual other than your employer gave or paid you money. There are many kinds of 1099 forms for different kinds of people. For example, a 1099-MISC is what freelancers often receive from their clients showing what the client has paid.
1098-Ts – This shows the amount paid for certain education expenses, like tuition and fees, in the year.
1098–Es – If you’re paying off student loans, your loan servicers use this form to report the total amount of interest paid. You use this form to figure out your student loan interest deduction.
4. Search for programs offering free or affordable help
There are many programs that offer assistance for individuals filing. College students can typically file for free via the IRS Free File Program if they earn an adjusted gross income of $73,000 or less. They can also consult with a certified public accountant. These are trained individuals with accounting degrees who are able to help with the special circumstances that come with filing taxes. They can also use services like TurboTax, Tax Slayer and TaxAct. All these services offer free live assistance from certified CPAs and tax experts during tax season. “There’s some different sites out there that can help guide you through the process. They’ll ask you questions and you answer them and they help you fill out your tax return,” Coon said.
5. How to maximize your refund
Filing as an independent allows you to receive tax credits or deductions for education-related expenses. According to Credit Karma, “Your parents can claim you as a dependent on their tax return if you’re a single, full-time student younger than 24. But if you’re paying your own way through college, be sure to talk to your parents about not claiming you so that you can take advantage of tax breaks on your own tax return.”
You can also take advantage of the American Opportunity Tax Credit, which can give students up to $2,500 to reduce their tax liability. “A portion of this can also be refundable,” Throckmorton said. For students attending college for more than four years, there is the Lifetime Learning Credit. This is also a tax credit on tuition like the AOTC.
Coon also states you can only claim what you have paid out of pocket. “So, if you got Pell grants that covered all of your tuition, you cannot claim that,” Coon said. However, you can still claim student loans. “People think because they got a loan, they can’t claim it, but you can claim it,” Coon said.
While taxes can be an intimidating task, there are a multitude of resources that can assist with all aspects of them from organizing and preparing to filing. Throckmorton stresses the importance of having a certified individual walk you through the process.
“The U.S. federal tax code alone is several thousand pages long, so there are always special circumstances, or things that apply to one taxpayer and not another even though it seems like they should be identical,” Throckmorton said. “It is very important for a student, or taxpayer of any kind to seek help from qualified individuals if they have questions about their particular situation.”