The student loan interest deduction lets you deduct up to $2,500 from your taxable income if you paid interest on student loans in 2018.
If you fall into the 22% tax bracket, the maximum deduction would put $550 back in your pocket. The information below is based on tax guidelines in place for the 2018 tax year.
What is the student loan interest deduction?
When you repay student loans, you’re not just paying down the original balance; you’re paying interest, too. The student loan interest deduction will let you subtract your interest payments from your taxable income if you earned less than $65,000 last year. Grads who earned between $65,000 and $80,000 can deduct a reduced amount of interest.
If you qualify, you can take the student loan interest deduction even if you don’t itemize. That is, you can take the student loan interest deduction and the standard deduction, too.
If your parent took out a loan for you, he or she will take the deduction. But neither of you can take it if the loan is in your name and you’re listed as a dependent on your parent’s tax return.
If you’re an overachiever who is making student loan payments while still in school, you can take this deduction too. It’s not just for graduates doing taxes.
» MORE: Tax deductions guide for 2019
What other tax breaks can I get for my education costs?
If you’re still in school, the government offers additional education tax breaks. You can claim the American opportunity credit, worth up to $2,500, or the lifetime learning credit of up to $2,000.
Your income and other factors can help you determine which credit will save you more. If you’re married, you must file your taxes jointly to be eligible for these credits or the student loan interest deduction.
Should you refinance your student loans?
Do I need to file a tax return?
You must file a tax return if you earned more than $12,000 in 2018 — even if your parents can claim you as a dependent. If you don’t, you’ll pay a failure-to-file penalty, which means you’ll owe the IRS an extra 25% or more in taxes, and you’ll forfeit any tax refund you’re entitled to.
Even if you made less than $12,000, the IRS recommends filing a return. That way, you’ll receive a refund if you qualify for one — money you can put toward savings, student loans or other financial goals.
Can my parents claim me as a dependent?
Your parents can list you as a dependent on their tax return if:
- You’re 19 years old or younger, you’ve lived with them for more than half of the year and they’ve provided more than half of your financial support
- You’re 24 years old or younger and a full-time student
- You’re permanently and totally disabled
If your parents claim you as a dependent, you can’t claim yourself on your return — and you can’t receive a student loan tax deduction or education credits.
If your parents claim you as a dependent, you can’t claim yourself on your return — and you can’t receive a student loan tax deduction or education credits. Be sure to check the box that says somebody else can claim you as a dependent.
Do I have to pay taxes on my scholarships?
You don’t have to pay taxes on scholarship or fellowship money that you use toward tuition, fees and equipment or books required for coursework. If your entire scholarship is nontaxable, you don’t have to report it on your return.
Any portion of those funds used for room and board, research, travel or optional equipment is taxable, though. You’ll report it as part of your gross income.
How do I file a tax return?
The tax filing deadline is Monday, April 15, 2019.
It’s easiest for most students and grads to file using online tax software. These programs walk you through each section of your return and help you decide which education deduction or credit will save you the most money.
» MORE: NerdWallet’s guide to preparing and filing taxes online
What documents do I need to file my taxes?
To fill out your tax form accurately, you’ll need:
- Form W-2: A wage and tax statement from your employer
- Form 1098-T: A tuition statement from your school, if you’re a student
- Form 1098-E: A student loan interest statement, if you paid interest on your student loans in the past year. Grads who paid more than $600 in interest in 2018 automatically received this form in the mail or by email. Those who paid less can still deduct the interest. Ask your student loan servicer to send you the document.
Throughout the year, save your receipts for educational expenses, such as tuition and books, and records of taxable scholarships or fellowships. You’ll need them to accurately report the amounts on your tax return.
I go to school out of state. Do I have to file in both states?
If you have a job and pay income tax while you’re in school, you’ll most likely have to file returns both in your home state and the state where you study. Laws vary, but the tax software or an accounting professional can let you know where you need to file.
What if I made a mistake when I submitted my tax forms?
The IRS will likely catch mathematical errors when it processes your return. The agency will also contact you if your return is missing any information.
If you didn’t claim all of your income or forgot to claim a credit or deduction, you can file an amended return. Send it in within three years of the date you originally filed or within two years of the date you paid the tax, whichever is later.
Remember that if you choose to use tax software or hire an accountant, you’ll have the opportunity to ask questions. It’s better to get guidance while you’re completing your return than to submit it when you’re unsure and then have to amend it later.