By Jacob Schaperow, editor-in-chief, @jschap1
Paying your taxes for the uninitiated college student
Tax Day is April 18. This is the day tax forms are due to the IRS for 2015. If you have not filed your tax returns already, you may be asking, “Do I need to pay taxes?” The answer is maybe.
In general, you are going to need to file a federal tax return if you earned more than $6,300 last year. The exception to the $6,300 rule is unearned income. Unearned income is income from dividends, interest or investment gains. In 2015, the limit for unearned income was $1,050.
Which form do I use?
Filing your own tax returns can seem intimidating, but there are really just a few forms that matter, and they can be pretty short. The main tax form is called the 1040. The full 1040 contains sections for claiming dependents and itemizing deductions. Most likely, it will not be worthwhile for a college student to itemize deductions, and this is good because as long as you are not claiming any dependents and you earned less than $100,000 in the past year (damn, that would be a high-paying internship), then you do not have to fill out the full 1040. Instead, look for either the 1040A or the 1040EZ.
The 1040A is like the 1040, but it does not allow itemizing deductions and you need to be earning less than the $100,000 taxable income cap to use it (not a problem for most college students). It is quicker to fill out than the 1040.
The 1040EZ is the most expedient of the three tax form options, but it has the most restrictions on its use. In addition to the cap on taxable income, not being able to itemize deductions, it does not permit claiming dependents and all of your income has to come from “wages, salaries, taxable scholarship and fellowship grants, unemployment compensation, and Alaska Permanent Fund dividends,” according to the IRS website. Notable, this does not include dividends.
In addition to federal taxes, you may need to pay state taxes. Rules vary by state, but in Maryland, individuals under 65 must file state tax returns if their gross income was more than $10,300 in 2015. Maryland tax forms can be found at the Maryland taxes website. Maryland residents who are being claimed as dependents on their parents’ tax forms should fill out the 502 form. It is necessary to fill out a federal tax form in order to complete the state tax form.
This is going to sound crazy at first, but even if your gross income was less than the threshold value of $6,300 or $10,300, you may want to fill out tax forms anyway. That’s because sometimes you can get a refund. In many cases, employers withhold federal or state taxes from your paychecks throughout the year, and they may not withhold the correct amount for you, based on your tax bracket.
To find out if you’ve paid more than you owe, check your W-2 form that your employer should have sent you earlier this year. The W-2 is a statement of how much money you earned at your job and how much was withheld for taxes, healthcare and social security. If your employer withheld more than you owed, indicate this on your tax form to request a refund.
Other forms that may be necessary for tax filing
If have invested money in the stock market, your stock broker will share the following forms with you: 1099-INT, for interest; 1099-DIV, for dividends and 1099-B for brokerage trades in stocks and bonds.
If you are itemizing deductions, you will want to have documentation on hand showing deductions like charitable contributions, medical expenses, and IRA contribution. It is a good idea to keep track of this throughout the year, once you start earning money full time.
Where do I send the forms?
Where you mail your tax return depends on whether or not you are sending a check or requesting a refund. Look it up on the IRS website at this link. If you are an out-of-state student, you may have to file tax returns in multiple states. That is beyond the scope of this column – sorry!
Go forth and file
That is all for this brief intro to paying taxes. I am as much a rookie as most readers are, so this column is definitely not meant to stand alone. Look up the tax forms and instructions online, ask your parents questions and check out the sources for this column – I found them quite helpful for preparing my own returns this year.
While there is something to be said for filling out paper tax forms at least once, the IRS offers a tax filing software called FreeFile that those with income below $62,000 can use for free.
Helpful glossary
Adjusted gross income – income reduced by adjustments to income.
Claiming dependents – People who are not being claimed as dependents on another’s tax return can decrease the amount of money they owe in taxes by claiming dependents on their own tax returns. Dependents are qualifying children or relatives whom the filer supports. For each dependent claimed, the filer can reduce his or her adjusted gross income.
Deductions – The standard tax deduction for 2015 is $6,300. You can straight-up subtract $6,300 from your taxable income. You may have heard of “tax deductible donations.” There are a number of expenses that can be listed as “itemized deductions” on your 1040 as an alternative to using the standard tax deduction. Think of it like the “Income Tax” space in Monopoly. If your itemized deductions are higher than the standard deduction, then it is worthwhile to itemize deductions.
Dividends – Certain publicly-traded companies pay dividends, or a portion of their profits, to shareholders as an incentive to invest in them. Income earned from dividends is taxed at a different rate from the rest of your income.
Gross income – Your total income for the year before subtracting adjustments, deductions, exemptions, etc.
Taxable income – This is the amount of income that is taxed. It is your adjusted gross income minus any exemptions and deductions. Remember: Taxable income<=Adjusted gross income<=Gross income.
Useful links for learning about how paying taxes works:
http://www.schwab.com/public/schwab/nn/articles/teen_tax_return
http://www.artofmanliness.com/2012/02/29/taxes-for-beginners/
