Welcome to the start of tax season; that special time of year that leaves many students scratching their heads, wondering what the heck they need to do to file their income tax return. If you’ve been following the news, you might remember that back in January 2018, the Trump administration passed a Tax Cuts and Jobs Act, which led to some pretty major changes to how Americans do their taxes.
The good news? The two most controversial changes for students were not included in the final bill. For instance, while there was a lot of fear about a potential tax on tuition waivers for graduate students, this was eventually axed. Similarly, Trump also wanted to get rid of the student loan interest deduction. This is a tax break that gives students the option to claim a deduction of up to $2,500 for interest paid on their student loans during the year. But this also didn’t make the cut and thankfully, the student loan interest deduction is safe and sound for now.
With those two major headaches eliminated, there’s way less to worry about. But that doesn’t mean you’re automatically in the clear. Here’s what has changed, and how it affects you.
Before 2018, if an outstanding debt was forgiven due to total and permanent disability or death (say, of a loan co-signer), the money you got back would completely skew how much you made in a year. This could’ve made you ineligible for things like Medicaid and Supplemental Security Income (SSI).
So, this change actually takes an enormous weight off the shoulders of permanently disabled students, which is great. The law covers any forgiven debt on student loans between 2018 and 2025, when it will hopefully get renewed.
Sound confusing? Let’s break it down. Basically, if you want to write off any classes that you’re taking as an employee, double-check with your boss that they meet IRS requirements and that you absolutely need them to keep your job. Otherwise, you might not be able to deduct them.
Luckily for all you self-employed artists and freelancers out there, you can still deduct education associated with your business.
Your education credit might get phased out
Trump’s tax law changed the eligibility criteria for the American Opportunity and Lifetime Learning credits. Though they still exist under the new law (so it’s not all bad), be aware that for your 2018 taxes, your income might affect your eligibility for these credits.
The American Opportunity credit is phased out if your modified adjusted gross income (MAGI) is between:
In addition to all the changes we just talked about, the tax form you fill out every year has also changed. Form 1040 has been re-designed and it now has six numbered “schedules” you might have to fill out in addition to the base form. For students, the two to focus on are Schedule 1 and 5 which you have to fill out if you want to claim student loan interest deductions or a refundable credit like the American Opportunity credit.
Luckily, if you file online you shouldn’t notice too big of a difference, because the software should be able to figure this stuff out for you. Besides Form 1040, make sure you have your Tuition Statement and you’ve received W-2 Forms from any employers.
Taxes may be a pain, but they don’t have to be scary, confusing or financially devastating. If you can write an essay about Foucault in one night, or crush that bio lab without flinching, then you can definitely file your taxes like the pro you are.