Two things in life are certain—taxes is one of them.
If you plan to work and earn income, then you should plan to pay taxes. Navigating the federal tax code will be an important part of your financial education as you learn about the concept of taxes, IRS regulations, and tax breaks and credits for which you might be eligible. While we may provide a general overview of the tax code, you should visit the IRS website or consult a tax professional if you have specific questions about your personal taxes.
How do I pay taxes?
You do not pay taxes once a year at tax time—you pay taxes all year via deductions from your paycheck. The amount deducted depends on the number of withholding allowances you claim. As a general rule: more allowances = less tax deducted, and fewer allowances = more tax deducted.
At tax time, your tax liability is calculated based on your income and any adjustments to that income. If you have not paid your tax liability over the year, you still owe tax; if you have overpaid, you will receive a refund.
Do I need to file a tax return?
If you earned income in excess of the limit set by the IRS, then you will have to file taxes for that year. Even if you aren't required to file a return, you may want to file. If too much tax was taken out of your income, for example, you would be eligible for a tax refund that you otherwise would not receive by not filing.
Deductions and Credits
While it is common for most tax benefits and credits to be claimed by your parents who claim you as a dependent, you will still be eligible for standard deductions that allow you to reduce the amount of tax you owe.
A deduction is a reduction in the amount of income subject to tax. Because this decreases how much of your income is used to calculate your tax liability, you owe less tax. A credit is a dollar-for-dollar reduction in the actual tax you have to pay. This reduction occurs after your tax liability has been calculated and directly decreases that liability.
In some cases your scholarship may be considered "taxable income" by the federal government—that is, if you file a tax return, you may have to report a portion of your scholarship as income you earned in that year. Typically, scholarship funding that goes toward "qualified costs" such as tuition, fees, books, and supplies is nontaxable; scholarship funding that goes toward "nonqualified expenses" such as room, board, and other non-course-related expenses may be taxable.
Most U.S. citizens and permanent residents will receive a Form 1098-T from the University mailed to your home address. This form states both the amount of tuition billed to you and the amount of scholarship aid you received in the calendar year.
If your scholarship aid is less than tuition, then there is no taxable scholarship. If your scholarship aid is greater than tuition, then the excess amount may be considered taxable income. If you track your textbook and other course-related expenses during the calendar year, subtract these expenses from the excess amount before reporting as income.
If you need another copy of your Form 1098-T, contact the Student Accounts Office at firstname.lastname@example.org.
If you have specific questions about determining taxable scholarship, contact the University Tax Department at email@example.com.
If you are an international student, contact the Davis International Center.