Student Status Brings Tax Woes

The Internal Revenue Service requires most working students to file a tax return, even if they were only part-time employees.

According to the IRS Web site, unmarried students who are still claimed as a dependent by their parents must file a tax return if they have unearned income of more than $700 or an earned income of more than $4,400.

Students must also file a return if their gross income is greater than $700 and exceeds their earned income by more than $250.

The IRS defines earned income as salaries, wages, tips, taxable scholarships and grants. Unearned income includes taxable interest, dividends, capital gains and trust distributions.

Tax laws for married students and students not claimed as dependents by their parents vary greatly. The IRS Web site also suggests these students consult a tax expert.

If these tax laws left you confused, you are not alone. Harvey Sapir, general manager of Jackson Hewitt Tax Service in Carrboro, said that much confusion for students centers on educational tax credits. "One of the things that students are entitled to are educational tax credits," he said.

Educational tax credits include the Lifetime Learning Credit, which students can claim at any point during their education, and the Hope Scholarship Credit, which students can claim during the first two years of their education.

Sapir said these tax credits are confusing for students because many students do not know what expenses they can claim. "The only expenses students can claim are tuition and required fees," he said.

An IRS spokeswoman, who asked that her name not be used, echoed Sapir. She said the biggest mistake students make is claiming room and board expenses and book fees, which cannot be claimed. The spokeswoman added that students must subtract scholarships and grants from their expenses.

Sapir said another confusing tax law deals with interest paid on student loans. "Student loan interest is deductible only during the first 60 months of the required repayment period," he said.

He said most required repayment periods do not start until after graduation. Sapir said some students start paying off loans before they graduate, but these payments are not deductible.

The IRS spokeswoman said confusion over what fees are deductible and what kind of interest can be claimed are just a few common problems. She said sometimes it is best to talk to an expert.

But Tim Stiles, associate director of business at the UNC University Career Services, said he does not know of any on-campus tax assistance for students.

"I've been in career services for 14 years and never had a student come to me with tax questions," he said.

Stiles said students should check with the Volunteer Income Tax Assistance program, a free program offered through public libraries. UNC School of Law students are offering free help filling out tax returns at 5 p.m. today in Union 226.

The State & National Editor can be reached at stntdesk@unc.edu.