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Income taxes for college students

Print Posted by Jamie Downey December 10, 2009 09:39 AM

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My daughter is a full time student here in Illinois, where we live. This past year she had a summer job and made approximately $3,000. She will be 20 years old in the next month. At what point will she not receive a full refund?

All individuals filing their federal income tax return receive what is called a “standard deduction”. This deduction is available to your daughter and will offset her taxable wages. The standard deduction for 2009 is $5,700. So your daughter has to make at least $5,700 before she will pay any federal income taxes.

The second thing an individual filer has at their disposal is the “personal exemption”. The personal exemption is available as a further deduction against one’s taxable income. The personal exemption for 2009 is $3,650. There is a bit of a catch though. If your daughter is a dependent, then you the parent can take the personal exemption as a deduction. Alternatively, if your daughter is not a dependent, she can utilize the personal exemption on her return. However, both of you can not take an exemption for your daughter. Typically parents use the personal exemption for students in college as they receive more of a benefit for the deduction. If you are not considering your daughter as a dependent and she is taking the personal exemption, then she can earn up to $9,350 (the sum of the standard deduction and the personal exemption) in taxable wages in 2009 before she pays any federal income taxes.

This does not address Social Security and Medicare taxes. For the most part, there are no deductions for Social Security or Medicare related taxes. Consequently, your daughter will not likely receive a refund on the Social Security or Medicare taxes withheld. (There are some college related job programs in which Social Security taxes are not required. However, I assume that this is not the case for your daughter.)

Also, I have not addressed state income taxes. Since the Democratic government in Illinois is as corrupt as it is here in Massachusetts, your daughter will also have to deal with state income taxes. I am not well versed on the Illinois tax code, but I believe that your daughter will not receive any standard deduction (as they do not do not exist in Illinois). Your daughter should be eligible for the $2,000 personal exemption if she claimed it on her federal tax return. This should still leave her with about $1,000 of state taxable income. (If you claimed her as a dependent, then she will not receive the exemption and will be subject to tax on the full amount of her taxable wages – as always, some exceptions to this rule.) Either way, it appears your daughter will be subject to state income taxes.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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About the contributors

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.