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Tax tips for students

Marisol Aguilar | 10/14/2010, 9:53 a.m.

Some students often complain that their pay is not enough, while others complain that the taxes withheld from their pay is a problem that leaves them living paycheck to paycheck.

The Internal Revenue Service (IRS) offers a few exemptions to qualified students that could add a little more money to paychecks.

Even though full-time students are still required to pay their income taxes like every other American, not all students necessarily have to. If you are a dependent student, (which means somebody else is claiming you on his or her taxes) and earns less than $5,700 for the year, by law you are exempt from filing taxes.

Students who are independent--which means they are married or no one is claiming them on their taxes--don't have to file taxes either, unless gross income was $9,350 or more. However, even if the student is not required to file, it is recommended to do so to receive a refund of the federal income tax withheld from their paychecks.

Independent students who claim dependents on their taxes can also claim an exemption that reduces the amount of income that is taxed, according to Anabel Marques, media relations specialist for the IRS. For 2010, the amount is $3,650 per exemption. There are two different types of exemptions for these students; exemption one is a personal exemption for the student and his or her spouse. Exemption two is a dependency exemption for each dependent.

If a person decides to claim an independent student status, that means no one else is claiming the individual as a dependent on their taxes, "but if a student's parents can claim them as a dependent, the student has no choice and must consider themselves as a dependent of another taxpayer," said Marquez.

Another help students should consider is a withholding exemption. The IRS is entitled to deduct taxes from the student's paycheck, but they may be able to eliminate that by qualifying for a withholding exemption, if they have met a certain criteria.

The exemption, however only applies to federal income tax, not to social security or Medicare tax, which means that on their paycheck the student will still notice some withholding.

For a student to claim an exemption from withholding for 2010 they would have the right to a refund of all federal income tax withheld in the previous year, which means you had no tax liability, and expect the same for 2010.

Students who are parents can also claim an exemption. However, three tests must be met. The first is called dependent taxpayer test, which states "if you could be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent," according to the IRS website.

If no one claims you as a dependent, then you can claim your child as a dependent. If someone else is claiming you as a dependent, you cannot claim anyone else as your dependent, including your child.

The second test is called joint return test, which basically states that one cannot claim a married person as a dependent, if he or she files a joint return. And the last part of the test is called citizen or resident test; this says one cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.

Finally, students who receive a federal work-study grant, which is a program that enables a person to work in a part-time job at school or off campus, the wages are also taxable, said Marquez. But if the student is eligible for withholding exemption, then they can abide by the previously stated criteria. The federal work-study grant is awarded as part of the student's financial aid package and is intended to help pay for tuition, books and supplies.

For more information on exemptions visit, www.irs.gov/publications/p501/ar02.html#en_US_publink1000220687.