Taxes are a mandatory contribution that individuals and businesses make to the state. They’re a major source of revenue for the government, which uses the funds to pay for public goods and services such as schools, hospitals, roads, and public safety.
As a college student, if you are employed, taxes are taken from your paycheck in several different ways:
- Federal Income Tax
- This is tax levied by the government, which is used to fund programs such as foreign affairs, social services, etc.
- State Income Tax
- Not all states have this tax but if they do, it’s very similar to federal income tax.
- Social Security Tax
- This helps fund benefits to retirees, people with disabilities, and survivors of deceased workers.
- Medicare Tax
- This helps fund a program that will provide medical benefits to certain individuals when they reach the age of 65.
Your employer typically withholds these taxes from your paycheck and sends them to the government on your behalf. This is known as “pay-as-you-earn” taxation.
At the end of the year, you need to file a tax return. This is essentially a summary of your earnings and the taxes you’ve paid over the year. It’s a way to reconcile the amount of tax you’ve paid with the amount that you owe. If you’ve paid more than you owe, you’ll get a refund. If you’ve paid less, you’ll owe more.
To file your tax return, you can use online software (e.g. TurboTax, TaxAct, etc.), hire a tax professional, or fill out the forms yourself and mail them in. The IRS provides a free filing service for those who earn less than a certain amount. Visit free-file-do-your-federal-taxes-for-free to see if you qualify.
As a college student, you may also be eligible for certain tax credits, such as the American Opportunity Tax Credit and the Lifetime Learning Credit, which can reduce your tax bill if you qualify.
Remember to keep all your tax-related documents, like W-2s from your employer and tuition statements from your school, in a safe place. You’ll need these when you’re preparing your tax return.
Make sure you file your taxes before the deadline, which is usually April 15th unless you file for an extension. Late filing can result in penalties and interest charges.
Filing taxes can be a complex process, but it essentially involves reporting your income, calculating your tax liability, and either paying the remaining balance or receiving a refund. It’s important to understand these concepts to navigate your financial health wisely.