Your Education and Taxes
Taxes are a part of everyday life. It's important to know tax benefits you may be eligible for when you file your taxes as well as how taxes may affect your income. For more details specific to your circumstances, consult a tax professional or the IRS.
Keep reading to learn more about taxes. Know what you're looking for? Click one of the links below to jump ahead.
Education Tax Benefits
Do you know that you might qualify for education tax benefits that can save money on your taxes? Many students don't, but understanding the different benefits can pay off!
Federal Education Deductions
Deductions are benefits that reduce your taxable income, which may also reduce the taxes you owe. If you're a current student or have paid interest on student loans in the last year, you may be eligible for federal education deductions. Visit irs.gov for more information.
The Tuition and Fees Deduction can potentially reduce your taxable income by up to $4,000.
The Student Loan Interest Deduction can potentially reduce your taxable income by up to $2,500.
Federal Tax Credits
General Requirements for Federal Tax Credits
You must file federal taxes.
Your income must not exceed a maximum amount set each year by the IRS.
You must have paid qualified education expenses during the tax year, for yourself or for a dependent. Generally, you will only qualify for these credits if you are still in school or have graduated within the past year.
You can claim only one credit per student in the same year. Families with more than one dependent student can claim a different credit for each student. The same is true for married couples with both spouses in school.
A tax credit is a dollar-for-dollar reduction of the amount of federal taxes you owe. Although the credits available differ in amount and eligibility, they share one feature: they directly reduce the amount of taxes you pay. For more information about these credits and other tax benefits available to students, visit the Federal Student Aid website.
Evaluating Tax Credits
The amount of a credit is based on qualifying education expenses paid during the year. The expenses are summarized by schools on Form 1098-T and mailed to you sometime in January.
IRS Publication 970 is a comprehensive explanation of available federal education tax benefits. Get it at irs.gov or call (800) 829-3676 to order it by mail.
Taxsites.com helps you find tax information for your state, including any state tax benefits you may qualify for.
Your Company Benefits Administrator. You may be eligible to receive tax-free tuition assistance from your employer. Contact your company benefits administrator for more information.
Taxes and Your Paycheck
Common tax deductions you may see taken out of your paycheck include:
|Taxes and Deductions|
|State & Local Tax||$XX.xx|
FICA or the Federal Insurance Contribution Tax (this may also be listed as Social Security, Medicare, or abbreviated versions of either of those). This deduction is used to fund the federal Social Security and Medicare programs.
Federal Tax (may appear as FT or FWT). This amount is held by the federal government to pay your federal taxes. If you withhold too much you receive a refund when you do your taxes. Withhold too little, and you have to send a payment.
State & Local Tax (may be abbreviated as St Tax, ST, or SWT). This amount depends on your W-4 and the location of your home and work.
There are other deductions from your paycheck that can affect your taxes, including contributions made to retirement accounts and monthly insurance premiums. These deductions reduce your taxable income and help you prepare financially for the future.
Depending on your job, you may not have taxes taken out of your paycheck automatically. Many waiters, tutors, and independent contractors may be required to estimate their own withholding quarterly. The IRS Withholding Calculator can help estimate how much you should set aside.
Filing Your Taxes
There are numerous tax forms you may need to file your taxes.
Income Tax Forms
A W-2 is the income tax form your employer completes to report your wages and withholdings to the IRS; they provide it to you by the end of January. You need this form to complete your tax return.
Tax Return Forms
When you file your tax return (and if you earned more than $400 in a year, you are required to), you will most likely use one of the following forms. Some of these forms are available for free at irs.gov, and others are provided to you by financial institutions or your school.
Click to read information about 1040 tax forms.
Click to read information about 1040A tax forms.
Click to read information about 1040EZ tax forms.
Click to read information about 1098 tax forms.
Click to read information about 1098-T tax forms.
Click to read information about 1098-E tax forms.
Click to read information about 1099-INT tax forms.