How To Report Student Loans On Taxes

Last Updated on December 15, 2022

How To Report Student Loans On Taxes

When you file your taxes, you’ll have to include the amount of money that you owe in student loans. While it’s not a lot of fun, it is necessary.

In this article, we’re going to show you how to report student loans on taxes so that you can get them taken care of as quickly as possible.

How To Report Student Loans On Taxes

5 other things to know about student loans and taxes

Taxes can be daunting. If you’re dealing with student loans during tax season, keep the following things in mind.

1. Dependents cannot deduct interest

If your parents can claim you as a dependent, you cannot deduct student loan interest from your overall tax bill. Your parents, however, might be eligible to claim the interest deduction if they are listed as a borrower or co-signer on your student loan.

If someone is helping you pay your student loans but they don’t list you as a dependent, you can still take advantage of the interest deduction. The payments they make on your behalf count as though you made them.

2. Don’t fear the marriage penalty

The marriage penalty is what happens when filing taxes jointly with a spouse results in a higher total tax bill than if the couple filed their taxes separately.

However, there aren’t any situations where being married filing separately would be beneficial while deducting student loan interest on taxes. In fact, married couples filing separately are not eligible for the student loan interest deduction.

3. Avoid default at all costs

Not only can defaulting on a student loan hurt your credit and cost you extra money, it also has other potential consequences. Your wages could be garnished and you could even have your tax refund withheld. While collection activities are on hold through May 1, 2022, for federal student loans, defaulted private student loans could result in a tax refund offset.

If you’re at risk of defaulting, take steps to set up a repayment plan or enroll in a forbearance program. Consider calling your loan servicer to create a plan that will help you manage your monthly payments; you might be eligible for a hardship program, an income-driven repayment plan or a settlement.

4. Only some 529 funds can be used for student loan payments

According to the U.S. Securities and Exchange Commission (SEC), funds in 529 plans can be used on a 100 percent tax-free basis when put toward qualified educational expenses, such as tuition and fees or room and board. In most states, you can also use up to $10,000 in student loan payments from your 529 without incurring a penalty or having to pay taxes. These funds can be applied toward both federal and private student loans.

5. Your employer can help with student loans tax-free

If your employer offers tuition reimbursement through a student loan repayment assistance program, it can make up to $5,250 in tax-free payments toward your student loans each year. You will also not be subject to income tax on these payments. This incentive is currently in place through Dec. 31, 2025.

are student loans taxable income

Your Guide to Filing Taxes With Student Loans

Student loans aren’t taxable income but can have an impact on how you file taxes.Ryan LaneFeb 23, 2022

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If you took out or repaid student loans in the past year, it can affect your taxes. Here’s what you need to know about filing taxes with student loans.

Do you have to file taxes on student loans?

When filing taxes, don’t report your student loans as income. Student loans aren’t taxable because you’ll eventually repay them.

Free money used for school is treated differently. You don’t pay taxes on scholarship or fellowship money used 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.

But any portion of those funds used for room and board, research, travel or optional equipment is taxable. You’ll report it as part of your gross income.

If you benefitted from an employer student loan repayment program, any money you received after March 27, 2020 is not considered taxable income.

How to deduct student loan interest

If you repaid student loans last year, you may be eligible for the student loan interest deduction. If your interest payment was over $600, your student loan servicer will automatically send you Form 1098-E, a student loan interest statement.

You can still deduct interest if you paid less than $600, which may be the case since most federal student loan payments have been paused interest-free since March 13, 2020. Contact your servicer to receive the form or access your online account to find the exact amount.

Filing jointly and separately with student loans

With student loans, your tax filing status mainly affects your income-driven repayment plan, if you have one. Income-driven repayment plans use the adjusted gross income listed on your taxes to determine your monthly payments.

If you file as single or head of household, your payments will be based on your income alone. If you’re married, filing jointly or filing separately can increase or decrease your student loan payments.Married filing separately

Choosing a filing status is easy if you’re enrolled in REPAYE, which is open to any borrower with eligible federal student loans. It treats filing jointly and separately the same. If you qualify for a different income-driven repayment plan, you’ll want to look at your financial situation to decide.

Filing separately could save you money in student loan payments each month, but it may not make up for a smaller tax refund. Married couples who file jointly are eligible for a standard deduction of $24,400, compared with $12,200 for those who file separately. Filing separately also disqualifies you for certain tax breaks, including the student loan interest deduction and education credits.

How to qualify for education tax breaks

If you paid for education expenses in the past year, you might qualify for an education tax credit. You can choose from either the American opportunity credit or the lifetime learning credit.

You can even qualify for one of these breaks if you paid for qualifying costs, like tuition and books, with a student loan. Your school will send you Form 1098-T, a tuition statement, to help you track qualified expense payments.

When to talk to a tax professional

As with most tax-related topics, if your student loan situation seems complex, it’s time to discuss your options with a professional. They can help you determine which combination of filing status, tax deductions and credits will save you the most money.

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