We all took a personal finance class in high school that was supposed to prepare us for the adult real world full of money and debt, yet somehow all we learned was random bank jargon and budgeting. I mean, thanks for letting me know the difference between a debit and credit card, but what about practical things like, I don’t know, loans, credit scores and taxes? For years I never had to worry about it, but now I’m broke and if the government owes me money, I want in. So what exactly are students confused about? Principal tax research analyst at H&R Block, Alison Flores answers some of those burning questions.
1. Under what circumstances does a college student absolutely need to file income taxes?
“The need to file is determined by a combination of factors: your filing status, your income and your age. Most college students you would assume are single, so that would be their filing status. So you look at your income, and the other thing that impacts that is whether your parents claim you as dependent. Once you figure those factors out you can just look at a chart and see if your income is equal to or above the filing threshold or below it.”
2. How do I know if I am an independent or dependent?
“There is actually a lot of information available from the IRS and a worksheet available to help you determine that. There are two factors that are most common for college students. One, whether or not you lived with your parents while you were in school and two, who supported you during that time. That’s where it can help to work with your parents, to determine if your parents claim you as dependent or if you’re more independent and you claim your own exemption.”
3. Even if you don’t have to file income taxes, are there any benefits to doing it anyway?
“Another reason you might want to file is if your employer withheld too much income tax on your wages. So you might want to file to get a refund on that, but you wouldn’t have to unless you were otherwise required to file.”
4. What documents do I need in order to file an income tax return?
“The W-2 is the most common form out there. That’s what your employer gave you to show how much you were paid and what your income withholding was. The other things you need depend on your circumstances. If you’re a college student, your college is going to issue a reporting document. You or your parents may need that to file the return depending on who’s claiming education tax benefits. For a college student it may also be helpful to have a record of amounts you were billed for and amounts you paid.”
5. If I do file my taxes, should I pay for an accountant or software? Or is it relatively easy to do on my own?
“I usually advise people to go with their personal preference. So some people may say ‘I can do this. I got this.’ and figure out how to do it on their own, either through the use of software or even just knocking it out themselves if they have a really simple return. Other people may want assistance, especially if it’s the first time.”
6. Do scholarships count as income?
“Depends. A lot of scholarships are restricted, meaning they send them directly to your school and your school applies them to your tuition. When they’re issued like that they’re basically nontaxable. Some other scholarships are unrestricted, meaning you can spend them on whatever you want. That type of scholarship is generally taxable. There is another variation where you might have a nontaxable scholarship and you want to choose to treat it as taxable if it made you or your parents eligible for a credit that you wouldn’t otherwise be able to claim.”
7. Do I file for the state where I am from, or for the state where I go to school?
“Most of the time the state where you’re from will consider you a resident for tax purposes. Most states would say that all your income is subject to tax in your state, no matter if you worked in another state or not. The state where you are temporarily living to go to school might also say ‘Well, you worked in our state so your income is subject to tax in our state, too’. In that case, if both states think you’re subject to tax for their state, you may have to have a credit for tax to another state and so it gets a little more complex.”
8. They already take funds out for taxes on my paychecks, so why do I have to pay my taxes again?
“The tax filing process is more like a reconciliation. So when you do your taxes, you ask how much you actually owe in taxes. And your paycheck withholding is kind of like a pre-payment estimate, like ‘I think I’m going to owe this much’ and then at the end of the year when you do your taxes you find out how much you actually owe and you kind of reconcile it.”
9. Are there any deductions or credits available to college students?
“Yes, there definitely are. This is where it kind of gets tricky because a lot of college students are still dependents of their parents, in which case their parents are going to be the ones that benefit. For something like a scholarship that would either go on the student’s tax return or the student would exclude that from their income and it would be non-taxable.”
10. What is the number one mistake college students DO NOT want to make if they decide to file taxes?
“I think the number one mistake people make is just answering a question they’re not sure about. My number one piece of advice is if you’re not sure or don’t know how to answer a question, try to reach out to someone who does or do the research on your own. Get some certainty about how to answer it before you file.”