Overview of Taxation for Students

Overview of Taxation for Students

Disclaimer This session has been created under the premises of the Volunteer Income Tax Assistance Program (VITA), a program of the Internal Revenue Service. In offering the services of VITA, Northwestern University does not make any representations regarding the nature, quality, or accuracy of this session. Participation in this session is entirely up to the individual taxpayer. By participating in this session, you agree to release any and all claims and further agree to indemnify and hold harmless Northwestern University, its trustees, officers, agents and employees from and against any and all damages, claims, demands, suits, judgments, penalties, and costs arising from the information presented in this session. You also agree to hold harmless the VITA program, its employees, volunteers, agents or subcontractors. If you disagree with this statement, please exit the room.

Agenda Phishing attempts Tax Year W-2s Federal Who must file Scholarship/fellowship Educational credits Illinois taxes Tax Resources

Phishing Attempts Beware of Bogus IRS Emails. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts; If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to phishing@irs.gov<mailto:phishing@irs.gov>

Tax Year Tax Year January 1, 2015 - December 31, 2015. This includes all income paid to you by Northwestern during that period regardless of when the work was completed. Example, worked in December 2014 that was paid in January 2015 counts as 2015 income.

Who must file- federal return If you are single and under 65 and your gross income was over $10,300, you must file a tax return. If you are married, filing jointly and your gross income was over $20,600, you must file a tax return. If your gross income was less than the numbers listed above you might still want to file a return if you paid federal or state taxes since you can be refunded your taxes or if you are eligible for the American Opportunity Educational tax credit (other educational credits will not result in refunds if you did not pay taxes). http://www.irs.gov/pub/irs-pdf/i1040.pdf (pages 6-7)

Forms to File Federal 1040 or 1040EZ (non-residents 1040NR or 1040NR-EZ) EZ version is easier (see IRS instructions for complete 1040EZ checklist). - Your filing status is single or married filing jointly. - You do not claim any dependents. - You do not claim any adjustments to income. - Your taxable income (line 6 of Form 1040EZ) is less than $100,000. Illinois 1040 You might also have to file for other states as well.

Common Tax Forms Needed for Tax Filing W-2 (issued by Payroll for employment wages) 1042-S (issued by Payroll for nonresident scholarships/fellowships and tax treaty reporting) 1098-T (issued by Student Accounts) 1099- (many different versions issued by many agencies-most are taxable) 1099-G (issued by Illinois Department of Revenue for 2014 Illinois tax returns) 1095-B (issues by Aetna to students covered under Aetna insurance)

Form W-2 Mailed by February 1, 2016 for all employment income. This includes temporary employment, research assistantship, graduate assistantship, teaching assistantship, additional pay, and other miscellaneous employment payments. It does not include any scholarship/fellowship income, but it will include any taxes you asked to be withheld from these payments.

Form W-2 W-2 were mailed to the current address on file with Payroll. If you need a replacement, you can log on to the website to download a duplicate. To access your W-2 go to http://www.northwestern.edu/hr/w2 login and follow the instructions or stop by the Payroll Office with a picture ID (M-F 8:00-5:00). CAESAR does not update your address with Payroll and you must update with us before requesting a duplicate W-2 to be mailed to an address other than what Payroll has on file (please remember to update your address in both places).

1095-B Form 1095 is mandated beginning with the 2015 tax year as proof of insurance coverage for all covered individuals. It is part of the Affordable Care Act (ACA), commonly referred to as Obama Care. Student forms were issued by Aetna, who provides most students their healthcare (unless you are selfinsured). If you need a reprint or any data on the form is incorrect, please contact Aetna directly.

Scholarship/Fellowship Scholarship/fellowship stipend payments paid by Payroll are not reported on a tax form unless you are a nonresident for tax purposes. The Payroll Office emailed scholarship/fellowship recipients on January 28, 2016 alerting them of their 2015 totals. If you did not receive your email, you can logon to the Self-Service system and your December pay advice will show your 2015 total. If you requested taxes to come out of your scholarship/fellowship by filling out a W4 and indicating an exact amount to be deducted, those taxes would be on the W-2, but the scholarship/fellowship income would not be reflected on the W-2.

Scholarship/Fellowship cont. A portion of your scholarship/fellowship income may be excluded from taxation if the money was spent on educational expenses such as tuition, and course-related expenses such as mandatory books, and mandatory fees (assistantships do not get these credits). http://www.irs.gov/pub/irs-pdf/p970.pdf (pages 5-6) You must save receipts for IRS audits, but do not submit them with your tax return.

Scholarship/Fellowship cont. It is up to you to claim your scholarship income on your tax return by adding it to your W-2 income. You add the money to the Wages, salaries, and tips line on the federal tax return and enter SCH on the dotted line next to the amount. (Line 1 1040EZ, line 7 1040). Only include the amount you used for expenses other than tuition and course-related expenses (as outlined in IRS Publication 970). http://www.irs.gov/pub/irs-pdf/p970.pdf (page 6) SCH 9750.00

Taxable Income Scholarships and fellowships that are not tax free and are used for room, board, and living expenses (non-qualified scholarship). Scholarships that cover only tuition, books, and fees are not reported on the tax return (qualified scholarship). If you use part of a reportable scholarship to pay for tuition, books, or fees, you don t have to report these expenses on your tax return. Employment Wages 2014 state income tax refunds (if you itemize) Interest income (saving or other bank accounts) Dividend Interest (stock market investments) Capital Gains Gambling Winnings Other income www.irs.gov

Deductions Standard deduction $6,300 single $12,600 married filing jointly (unless your parents are claiming you on their tax return- check with them). Dependents (may claim a deduction for all qualified dependents). Itemized deduction (if higher). Complete Section A. Please note- many times only those that own homes will have enough other deductions to itemize. State and local taxes you paid that are listed on your W-2 (for 2015). Charitable contributions to tax exempt organizations you must have receipts. http://www.irs.gov/pub/irs-pdf/i1040.pdf (pages 38-40)

American Opportunity Tax Credit The maximum amount of the credit is $2,500. Taxpayers claims an education tax credit by completing Form 8863, Education Credits, and attaching it to Form 1040 or 1040A. http://www.irs.gov/pub/irs-pdf/p970.pdf (pages 9-20)

American Opportunity Tax Credit Easy to follow flow chat to check eligibility on page 11.

The Lifetime Learning Credit This credit can help pay for undergraduate, graduate and professional degree courses regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 per tax return. http://www.irs.gov/pub/irs-pdf/p970.pdf (pages 21-28)

Other Educational Tax Credits/Deductions Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American Opportunity or Lifetime Learning credits. http://www.irs.gov/pub/irs-pdf/p970.pdf (pages 38-42)

Limitations on Educational Credits You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit. You cannot double deduct the same educational expenses (reduce scholarship income reporting and also claim the same expenses as an educational credit). http://www.irs.gov/pub/irs-pdf/p970.pdf (pages 8-43)

State Taxes Who must file with Illinois? If you were an Illinois resident, you must file Form IL-1040 if you were required to file a federal income tax return, or you were not required to file a federal income tax return, but your Illinois base income from Line 9 is greater than your Illinois exemption allowance. a nonresident, you must file Form IL-1040 and Schedule NR if you earned enough taxable income from Illinois sources to have a tax liability (i.e., your Illinois base income from Schedule NR, Step 5, Line 46, is greater than your Illinois exemption allowance on Schedule NR, Step 5, Line 50) *non-resident does not mean you are from a different country! http://tax.illinois.gov/taxforms/incmcurrentyear/individual/il-1040-instr.pdf (pages 2-3)

State Taxes If you work in Illinois we must withhold Illinois taxes unless you are from a neighboring state that has a reciprocal agreement (Wisconsin, Michigan, Iowa, and Kentucky). Those states can complete Form IL-W5-NR to have Northwestern stop withholding Illinois taxes. http://www.revenue.state.il.us/taxforms/withholding/il-w-5-nr.pdf Students that are considered Illinois nonresidents might be able to claim their Illinois taxes back on their tax returns by filing out Schedule NR if they meet the nonresident definition. - Example: Rob, who is from Missouri, attends college in Illinois (and pays nonresident tuition). Rob is a full-year nonresident, even though he lives in Illinois for nine months of the year while attending school. http://tax.illinois.gov/individuals/studentdefinitions.htm

State Taxes If you earned income in another state during 2015, you might also need to file taxes in that state in addition to Illinois if you are a resident of that state. You generally have to report your Illinois income to your tax residency state, but can take a credit for the taxes and income you earned/paid in Illinois. If you file as an Illinois nonresident and claim a tax credit for those earnings you would not receive that credit. Refer to each state s Department of Revenue website for details.

Tax Deadlines Federal tax returns must be postmarked no later than April 18, 2016. State income tax returns must also be postmarked by April 18 2016* * [Illinois ] grant an automatic six-month extension of time to file your return. If you receive a federal extension of more than six months, you are automatically allowed that extension for Illinois. These extensions do not grant you an extension of time to pay any tax you owe. If you determine that you will owe tax, you must use Form IL-505-I, Automatic Extension Payment for Individuals, to pay any tax you owe to avoid penalty and interest on tax not paid by April 18, 2016. http://tax.illinois.gov/taxforms/incmcurrentyear/individual/il-1040-instr.pdf (page 3)

Important Notes When you file your tax return, save a signed copy. If you e-file, print a copy for your files or save an electronic version. Keep these copies and any backup documentation (such as receipts for books, fees, and supplies) in a secure location for 4 years. If there are errors with your W-2 contact the Payroll Office.

Resources Federal tax publications available on the IRS website. www.irs.gov Publication 970- Tax Benefit for Education http://www.irs.gov/pub/irs-pdf/p970.pdf Publication 17- Your Federal Income Tax http://www.irs.gov/pub/irs-pdf/p17.pdf State tax publications available on the Illinois (or other state s) Department of Revenue website. Illinois 1040 instructions http://tax.illinois.gov/taxforms/incmcurrentyear/individual/il- 1040-Instr.pdf

Free Filing Resources Free federal electronic filing through the IRS website. http://www.irs.gov/uac/free-file:-do-your-federal-taxes-for- Free Free state electronic filing through the Illinois Department of Revenue website. http://tax.illinois.gov/mytax/il-1040.htm Turbo Tax free versions available https://turbotax.intuit.com/ H & R Block- free versions available http://www.hrblock.com/ Taxact.com- free versions available http://www.taxact.com