The Internal Revenue Service website is a labyrinth of odd letter and number combinations, polysyllabic words, cross-referencing and jargon. Given the complexity of tax law and the documents that supposedly explain it, it is no surprise the majority of Americans pay to have their taxes filed. As April 15 approaches, how will you file?
George Violette, professor of accounting at USM, said students have several free or inexpensive filing options. The first is the Volunteer Income Tax Assistance (VITA) program. There are VITA locations in Gorham at the Baxter Memorial Library in Gorham and the Portland Public Library in Portland, among a few others. The volunteers in these locations will help answer questions, help fill out forms and at many even help electronically file the tax return.
Another option Violette recommended is tax filing software like TurboTax, for those of an independent nature. The software should be available at any retail outlet that sells office products (i.e. USM Bookstore, Staples, OfficeMax) for around $25. The program can also be used for free online by linking to it from the IRS website.
For those who want to go it alone, publication 970 on the IRS webpage has information on all student related tax questions. It may not be the best option though. “It’s supposed to be written in English, but it’s still tough,” said Violette.
Violette said the volunteer services are the best way to file taxes, particularly for international students whose tax returns can become a lot more complicated than the usual students.
Hope and Lifetime Learning Credit
The two major breaks college students get are the Hope credit and the Lifetime Learning credit. The Hope credit is a 100 percent tax credit on the first $1,000 of tuition expenses paid and an additional 50 percent on the second $1,000. The Hope credit may only be claimed if a student is enrolled at least half-time, and only for the first two years of undergraduate study.
The Lifetime Learning credit is available to anybody who attends a higher education school with no restrictions on enrollment or year of study. The credit is a 20 percent tax credit on the first $10,000 of tuition expenses, for a maximum of $2,000.
Eligible tuition expense for both of these credits is defined as the balance left over after all the students scholarships and grants have been applied. Loans are treated the same as if a student has paid out of their pocket, and so any tuition paid by loans may be applied to either credit.
A student can claim only one of these credits in any year. If a student can be claimed as a dependent on another person’s tax return, then he or she must claim the credit, not the student. Students whose employers are paying for tuition are not able to claim either of these credits.
Scholarships, Grants, and Loans
Violette said scholarships applied towards tuition not considered income. A scholarship applied to other expenses though, such as room and board is considered taxable income and must be reported. Violette said each student who receives scholarships should do some reading to see where they lie.
Loans are not considered income, and students can’t claim any credit for them until they begin paying on the loans. According to Violette, once a student does start repaying a loan, the interest, or a portion of it, can be deducted.
Work-Study
Students who collect work-study money must claim it as income. That taxes are not withheld from paychecks may mislead some into thinking the work-study money is tax free. It isn’t.
Violette said that for a student whose sole source of income is work-study, they wouldn’t likely make enough to have to pay-in. Where a student may get into trouble is when they make enough through a part-time or summer job to push their yearly income high enough that they haven’t paid enough in taxes. This would mean having to pay in money at the end of the year instead of getting a return.