Filing an income tax return can be confusing for students, especially if it’s their first time filing.
But there are some general guidelines that can make it a bit easier, according to Osama Osaghae, manager of Beverly-based Osaghae & Associates and a certified public accountant.
Students from Illinois who have jobs would file their state tax based on their Illinois residency. Out-of-state students may need to file in their home state and in Illinois, as a non-resident or part-year resident, depending on where they earned income.
But it can become complicated. If parents claim a student as a dependent on their federal tax return, that child, if they’re unmarried, must still file a tax return if their earned or unearned income exceeds certain limits, according to the IRS.
“There are multiple tax implications for claiming a child who is a student and who also works,” said Vincent Osaghae, a chartered financial analyst and former accounting professor at Chicago State University, who recently retired.
Vincent Osaghae said the IRS generally defines a student as anyone enrolled full-time at a qualifying educational institution. Students have the same April 15 filing deadline, unless they qualify for special exceptions like military service.
He said students claimed as dependents must file if they earned more than $13,850 in 2024 or have more than $1,250 of unearned income, such as interest from savings or inheritance money.
Carl Breedlove, lead tax research analyst at the Tax Institute at H&R Block, the company’s independent research division, said filing taxes for the first time can be complicated.
“Students should keep track of their expenses to ensure they don’t miss out on potential tax benefits,” Breedlove said.
That’s because even if a student is not required to file, they could still receive a refund if they worked a part-time or full-time job for the year and their Form W-2 shows federal or state withholding.
Those who take on summer jobs may still need to file a tax return. Money earned from jobs like babysitting or gig work is generally seen as self-employment, which is taxable. They may also be subject to paying Social Security and Medicare taxes.
And students who earn tips should keep a daily log, as those wages are taxable. Cash tips must also be reported to their employer for any month in which tips total $20 or more.
Students in an ROTC program who are paid for activities like summer advanced camp will have to pay taxes on those wages. Allowances like food and lodging may not be taxable, but details can be found at IRS.gov.
Do you qualify for education-related tax credits?
Vincent Osaghae said students should also check if they qualify for education-related credits such as the American opportunity tax credit and the lifetime learning credit, as well as Illinois-specific tax credits for tuition.
An education credit helps with the cost of higher education by reducing the amount of tax owed on a return.
The AOTC is for education expenses in the first four years of higher education. Filers can get a maximum annual credit of $2,500 per student. If the credit reduces the filer’s tax to less than zero, they may get a refund of up to $1,000.
The LLC is for qualified tuition and related expenses for students at an eligible educational institution and can apply to undergraduate, graduate or professional degrees. The credit is worth up to $2,000 per tax return, and there’s no limit on the number of years a filer can claim the credit.
There are different eligibility rules for the AOTC and the LLC, but the IRS said filers must meet all three of the following criteria for both:
- The eligible student must be enrolled at an eligible education institution such as a trade school, college or university.
- The eligible student is yourself, spouse or a dependent you list on your tax return
- You, your dependent or a third party pays qualified education expenses, like tuition and student activity fees, for higher education.
While scholarships and grants are typically tax-free, there may be situations where filers have to include them as taxable income. The IRS offers an interactive assistant on its website to help students determine if a scholarship or grant is taxable.
Taxpayers who have student loans or pay their own education costs, may be eligible to claim education deductions and credits on their return, such as loan interest deductions, qualified tuition programs like the 529 plan and Coverdell education savings accounts.
