If you do payday loans IL not normally file a federal tax return, you might consider filing this year. Congress continued the federal income tax credit available to students and their families with tuition and other eligible college related expenses.
If you are claimed as a dependent on another person’s (such as your parents) tax return, only the person who claims you as a dependent can claim a credit for your qualified educational expenses.
The American Opportunity tax credit applies to the first four years of your undergraduate studies. You may claim up to $2,500 for this credit if you meet the income requirements and are attending school at least half-time. Even if your income level was not high enough during the year to incur federal income tax liability, up to 40 percent ($1,000) of the tax credit can be received as a refund.
The Lifetime Learning Credit helps parents and students pay for undergraduate, graduate, and continuing education. You for qualified education expenses depending on your income level.
Depending on your individual circumstances, there are additional tax credits and deductions that may be better for you. For guidance, please consult a tax advisor.
1098-T forms
Your 1098-T form is available online through MyUW. If you have not opted out of receiving a paper copy, it will be mailed to you during the last week of January. The form will list your tuition and related fees paid in box 1. Any scholarships, fellowships, and grants you received in the prior calendar year will be listed in Box 5. If you have questions about your information, contact Student Fiscal Services.
Non-taxable income
Financial aid used solely for tuition, fees, books, and/or required course equipment and supplies is not taxable. In addition, student loans are not taxable income.
Taxable income
If you receive scholarships, grants, and/or fellowships that exceed your costs of tuition, fees, books, and required course-related equipment and supplies, you are required to report the excess funds as taxable income. Funds used to pay room & board, travel, and non-required equipment and supplies are also taxable.
If your award covers both tuition and room & board, the amount you use for tuition is tax-free, while the amount you use for room & board is taxable. Scholarship and fellowship recipients should retain fee statements, textbook receipts, and similar records to support their calculations of the non-taxable and taxable portions of their awards.
Prizes
If you win a cash prize in a contest, it can only be considered a scholarship if you are required to use the money for educational purposes. If the prize can be used for non-educational expenses, it is not a scholarship regardless of how you used the funds.
Work study income
Work Study income is taxable. You will receive a W-2 from the university in late January. Your W-2 will list your work study earnings for the prior year and this amount must be included on your income tax form. When you complete your FAFSA, remember to list your work study earnings under taxable earnings from need-based employment programs‘ in question 44 Additional Financial Information.
Tax credits and deductions
A tax credit reduces your tax liability or the amount of taxes you owe, regardless of your tax bracket. A deduction will ount of the deduction dependent upon your tax bracket. A $1,000 credit will reduce your taxes owed by $1,000, while a $1,000 deduction will decrease your income by $250 if you are in the 25% tax bracket.
It is best to calculate any credits and/or deductions you are eligible for, then select the one that benefits you the greatest.
Reminders
- Tuition tax credits may not be claimed for tuition and expenses that are paid for with tax-free funds such as scholarships, fellowships & grants
- If you are claimed as a dependent on another person’s tax return, only the person who claims you as a dependent can claim the tax credit
- If you are married, you must file jointly to qualify for tax credits
- You may only claim one type of credit per student either the American Opportunity or Lifetime Learning
- The American Opportunity tax credit is only for undergraduates, while the Lifetime Learning credit can be used by either undergraduates or graduate students
- You, or your parents if you are a dependent, erican Opportunity tax credit for each eligible student in your household
- If you claim the Lifetime Learning credit, it is limited to a maximum per household, not per student