Student loans are a common source of debt for students. While student loans are usually considered to be income, they do not always count as income on your taxes. Here are the things you need to know about student loans when it’s time to file your taxes.
The IRS considers all income to be taxable. This includes money you earn from your job and any money you earn from investments or other sources.
However, there are deductions that reduce your overall tax burden. When you file your taxes every year, you’ll receive a number that’s known as your Adjusted Gross Income or “AGI.” Your AGI is the total of all your taxable income, minus any deductions you qualify for.
The answer is: it depends.
Generally, student loans are NOT considered taxable income as long as they meet certain standards. Student loans that were taken out to pay for tuition and other school-related costs are generally regarded as educational expenses and not taxable income. Additionally, student loan payments made while you’re still in school are not subject to federal or state taxes until you’ve earned over $60,000 per year.
If you’ve taken out student loans to cover other costs, like living expenses or a car payment, those debts may be taxable as income. The amount of income that your student loans count as will depend on the terms of your loan and your individual tax situation.
There are a few different types of financial aid that can be considered income.
If you’ve used your student loans for things that aren’t considered education-related expenses by the IRS, there are a few things you can do to reduce your tax burden:
Student loans can be a great way to get the money you need for college and don’t typically affect your AGI unless they’re in a category of financial aid that the IRS deems as taxable. Remember, it’s essential to consult with a tax professional to get an accurate understanding of your specific situation.