Over the past several years, college students have experienced unprecedented upheaval.
Many have moved several times to keep themselves and their family safe. Huge labor shortages mean that college students have more opportunities to earn money in traditional jobs and self-employed side hustles. Not to mention, many college students launched their investment portfolios with non-traditional assets like crypto or NFT.
With so many moving pieces, college students and recent grads are likely to find that tax filing is remarkably tricky. This guide is designed to explain how college students and recent grads can find the best deals on DIY tax software that will meet their needs.
Do You Need To File A Tax Return?
If you’re a college student who is still being supported by your parents, you may not need to file a tax return. But many college students have to file a return, even if their parents will still claim them as a dependent.
College students are required to file a tax return if they have earned an income of more than $12,550. They also have to file if they have “unearned” income (interest dividends, capital gains, etc.) of more than $1,100.
Even if you have to file your return, your parents may claim you as a dependent until you’re 24 years old. They can claim you if they provide more than half of your support. Coordinate with your parents to determine whether they will claim you or not.
Recent grads typically cannot be claimed by their parents. People who are not full-time students cannot be claimed as dependents in most cases.
Figure Out "What Kind" Of Filer You Are
If you have to file a tax return, you’ll need to figure out what kind of filer you are. This year, there is a ton of marketing hype focused on college students and recent grads. Most of the major tax software companies are offering federal filing to people claiming student loan interest deductions or educational credits.
Unfortunately, this so-called free filing may not end up being free for students. Many people have other complicating factors that may influence their tax software of choice. Below are a few of the most common factors that students or recent grads may overlook.
Living in multiple states. Multi-state filers often have to pay for two or more state returns.
Self-employment income. People who received 1099-NEC forms (or those who ran their businesses) are expected to file a Schedule C. This form often drives up the price of tax filing for students.
Crypto trading or other forms of investing. Students who traded cryptocurrency, NFTs, or stocks will have to claim capital gains or losses.
Saving into retirement accounts. If you had a low income and you contributed to a Roth IRA or a traditional IRA, you may be eligible for the American Saver’s Credit. This makes you someone who wants to maximize credits and deductions.
Of course, non-traditional college students may need to claim a Child Tax Credit or a Dependent Care Credit, or other types of credits or deductions.
Your Tax Filing Type Drives Your Cost And Needs
Different tax situations drive your tax software needs and the costs associated with them. A person with a W-2 job in one state, and no deductions or credits can use TurboTax or H&R Block to file their taxes for free.
But filing isn’t as simple as it once was. A person may think of their “job” as charging scooters and delivering food for GrubHub. However, these jobs are forms of self-employment. TurboTax and H&R Block suddenly become very expensive options, while Cash App Taxes is a free option.
Students or grads who worked in multiple states can’t use Cash App Taxes, and TurboTax and H&R Block become very expensive in this situation. However, FreeTaxUSA is a reasonable alternative.
Students who dabbled in crypto trading can use TaxBit to calculate their taxable liability. However, they may need to use paid tax software to complete their tax return.
Best Tax Software Options For Students And Recent Grads
Here are the best options based on your filing situation:
W-2 Job, Single State, Only Student Loan Interest or Educational Credits. No investments or retirement contributions.
H&R Block supports “snap a picture” uploads which dramatically simplifies filing for W-2 wage earners. Once you complete the basic information, your tax return will be almost complete. H&R Block allows filers to claim student loan interest deductions and education credits for free.
Living and working in multiple states. No cryptocurrency investments.
FreeTaxUSA offers free Federal filing for all tax situations, and it charges $14.99 per state. The software is quite easy to use unless you need to report stock trades or cryptocurrency investments.
Retirement contributions or self-employment income in a single state.
Cash App Taxes supports most major tax forms (excluding K-1 forms), and it is free and easy to use. It does not support multi-state filing or international income.
TaxBit is a tax software that allows users to calculate their capital gains on blockchain transactions. It is free for “conventional” crypto tokens traded on most major exchanges in the United States.
TaxBit users can import their tax forms directly into TurboTax Premier. This is a high-cost software, but it dramatically simplifies tax filing. Without this type of software, you would have to manually enter each transaction into a tool like Cash App Taxes or FreeTaxUSA.
Didn’t find your tax situation here? Check out the best tax software for every tax filing situation. You may find that free tax software won’t suit your needs this year, even though several companies are targeting students with their ads. However, you can find an option that suits your needs.
Hannah is a wife, mom, and described personal finance geek. She excels with spreadsheets (and puns)! She regularly explores in-depth financial topics and enjoys looking at the latest tools and trends with money.
Editor: Robert Farrington