Published August 12th, 2023

The transition from high school to college often marks the first time many young adults encounter the world of taxes. The tax code can seem complex and intimidating, but understanding it can lead to significant savings. Here's what students need to know about filing taxes.

1. Do Students Need to File Taxes?

Whether a student needs to file a tax return depends on their income. If you've earned above a certain threshold, you are required to file a tax return1. Keep in mind that even if you're not required to file, doing so could result in a refund if you've had taxes withheld from your paychecks.

2. Understanding Tax Benefits for Education

There are several tax benefits that students can take advantage of. These include the American Opportunity Tax Credit (AOTC), which is worth up to $2,500 per year for eligible students2, and the Lifetime Learning Credit (LLC), which can provide up to $2,000 per tax return3.

3. Scholarships and Fellowships

Certain scholarships or fellowships may not be taxable under federal income tax law4. Generally, if you use these funds for tuition, fees, books, supplies, and equipment required for your courses, they are not included in your taxable income.

4. FAFSA and Taxes

Your tax information plays a crucial role in filling out the Free Application for Federal Student Aid (FAFSA)5. It helps determine how much financial aid you are eligible to receive.

5. Tax Tips for College Students

Keep track of your education-related expenses throughout the year. These can add up to substantial deductions or credits when you file your taxes6. Additionally, consider using tax software or seeking help from a tax professional to ensure you're maximizing your benefits.

In conclusion, while taxes can seem daunting, understanding your obligations and potential benefits can save you money and give you a head start on financial literacy. Remember, when in doubt, seek advice from a tax professional or trusted financial advisor.

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