IRS Tax Laws for Full-Time Students

As a full-time student, you have the same obligations to file a tax return and pay tax on your income as anyone else. However, if you spend a majority of your time studying rather than earning income, you may not have an obligation to file an income tax return. But if you do, there are special education-related deductions and credits available to you.

Student Filing Requirements

The tax laws require full-time students to file a return for any year their gross income is equal to or greater than the sum of the standard deduction plus one personal exemption. The personal exemption is the same for all taxpayers who qualify to claim it. However, the standard deduction varies across filing statuses. To use the 2011 tax year as an example, single and married filing separately filers can take a $5,800 standard deduction, head of household taxpayers receive $8,500 and married couples who file a joint return receive $11,600. If you are still a dependent on your parent’s or any other taxpayer’s return, you are subject to different filing requirements.

Student Dependents

When another taxpayer claims you as a dependent, he takes an additional exemption for you. As a result, you are unable to claim a personal exemption on your own tax return. Effectively, this requires students to file a tax return when their gross income is equal to or greater than the standard deduction available to single filers. In addition, since you are a dependent, you are not eligible for any other filing status. Therefore, in 2011, all full-time students who earn at least $5,800 of gross income must file a tax return.

Scholarships and Grants

For purposes of evaluating your filing obligations with the IRS, you only include income you receive that is subject to tax. If you receive scholarships or grants, you need to ensure they aren’t taxable. Provided you are a candidate for a degree at a school that is eligible to participate in the U.S. student financial aid program and you only use the scholarships and grants to pay for tuition, fees, books, supplies and equipment, you can exclude the entire amount from your gross income. However, if you use even part of the funds for other purposes, such as to pay room and board charges or rent, you must include those amounts in gross income.

Educational Tax Benefits

Although you may need to file a tax return and pay tax, the IRS offers a range of opportunities to reduce your tax bill for education expenses. Full-time students are eligible for the lifetime learning credit, which reduces your tax bill on a dollar-for-dollar basis up to $2,000 for some of the tuition and fees you pay during the year. And if you are still in one of the first four years of postsecondary study, you should evaluate your eligibility for the American opportunity credit instead since it can potentially reduce your tax bill by $2,500 for the tuition, fees, books, supplies and equipment expenses you incur during the year.