Started School? Here’s How It Affects Your Taxes

Starting school can change your taxes. Keep Form 1098-T, 1098-E, and W-2 handy to claim education credits, deduct student loan interest, and avoid refund offsets.

You might qualify for education credits like the American Opportunity or Lifetime Learning Credit. If you default on federal student loans, the Treasury Offset Program (TOP) may withhold part or all of your federal tax refund. See IRS Topic No. 203 for details. Or you could enjoy tax-free perks if your employer helps cover tuition.

This guide breaks it down so you can make the most of your tax benefits, avoid surprises, and confidently file when tax season comes around.

New Students: What Changes on Your Taxes

Congratulations on starting school! While the IRS doesn’t hand out report cards, it does send important forms that affect your tax return. When you start college or another eligible educational institution, a few things happen on the tax front:

• You’ll likely receive a Form 1098-T, the Tuition Statement, showing what you paid in tuition and what your school received in scholarships or grants.
• You might qualify for education credits that lower your income tax bill.
• If you took out loans, the interest could become tax-deductible.
• If your loans are in default, the Treasury could offset your refund.
• Your employer might even offer tax-free tuition or loan repayment benefits.

🧾 Pro Tip: Create a “school tax” folder — save every form, tuition statement, and loan payment receipt. These documents will make filing faster and help you claim every available tax break.

Download the Started School Checklist. It has everything you need to file like a pro.

Understanding Form 1098-T and Other Key Student Tax Forms

When you start school, one of the first tax forms you’ll encounter is Form 1098-T, officially called the Tuition Statement. Every eligible educational institution (accredited schools that participate in federal student aid programs) must send this form to both you and the IRS if you paid for qualified tuition during the year.

What Form 1098-T Shows

Form 1098-T reports how much qualified tuition and related expenses you paid to your school during the tax year and the total amount of scholarships and grants your school processed on your behalf.

Here’s what you’ll typically see on the form:

• Box 1: Payments received for qualified tuition and expenses (this is what you actually paid).
• Box 5: Scholarships or grants applied to your account.
• Box 7: Indicates if any payments made in the current year apply to an academic period beginning in the next tax year (for example, you paid in December for classes starting in January).
• Box 8: Confirms whether you were enrolled at least half-time, a key factor for claiming certain education credits.
• Box 9: Notes if you’re a graduate student.

Don’t worry if your 1098-T looks incomplete — schools use different billing systems, and not all qualified expenses appear. Keep tuition receipts and statements as backup proof when claiming credits like the American Opportunity Credit (AOTC) or Lifetime Learning Credit (LLC).

Learn more about Form 1098-T and how to read your tuition statement

Why 1098-T Matters for College Student Taxes

The 1098-T form is your golden ticket to education tax benefits. It’s how the IRS knows you’re eligible for tax breaks like:

• Education credits, which directly reduce your income tax.
• Tax deductions for qualified education expenses or student loan interest (via Form 1098-E).

If you received scholarships or grants greater than your qualified tuition, part of that excess may count as taxable income, especially if it covered housing, meals, or travel rather than tuition or fees.

🧠 Pro Tip: Don’t file your return until you receive your 1098-T (usually by January 31). Double-check that your Social Security number and address are correct. Minor errors can delay your tax refund or cause the IRS to flag your claim.

Other Forms Students Should Watch For

• Form 1098-E: Reports interest paid on student loans — up to $2,500 may be deductible.
• Form W-2: If you worked during school, you’ll get this from your employer to report your wages and withholding.
• Form 1099-INT or 1099-NEC: You may receive these if you earned interest income or worked freelance gigs.

💡 FileTax.com Tip: Combine your 1098-T, W-2, and 1098-E before you start filing.

📎 IRS References:

• Form 1098-T: Tuition Statement
• Form 1098-E: Student Loan Interest Statement
• Publication 970: Tax Benefits for Education

Education Tax Credits: American Opportunity vs. Lifetime Learning Credit

Few tax breaks are as valuable for students as education credits — and knowing which one applies to you can mean hundreds or even thousands of dollars in savings at tax time.

The IRS offers two main education tax credits: the American Opportunity Credit (AOTC) and the Lifetime Learning Credit (LLC). Here’s how they compare:

The American Opportunity Credit is generally best for eligible undergraduate students in their first four years of school, while the Lifetime Learning Credit offers more flexibility for graduate students, part-time students, and those taking career or continuing education courses. Both credits can help reduce your tax bill, but the right option depends on your enrollment status, expenses, and whether someone else claims you as a dependent.

To understand exactly which credit you qualify for and how to calculate it, see our full Education Credits guide.

Student Loan Interest and Forgiveness Rules

Most students borrow to fund school, and the IRS gives you a small break to repay those loans.

Student Loan Interest Deduction

If you’re repaying student loans, the interest you pay may help lower your taxable income. This tax break can apply to both federal and private student loans used for qualified education expenses, which can make repayment a little more manageable while you’re in school or after graduation.

See the Student Loan Interest Deduction guide for full eligibility rules and examples.

Student Loan Forgiveness Tax Bomb

Most federal student loan forgiveness is tax-free through the end of 2025, under the American Rescue Plan Act. Unless extended, forgiven debt after 2025 may be taxable. After that, forgiven debt may become taxable income unless you qualify for special programs like Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness.

Source: ARPA §9675

Related Topics:

• Student Loan Forgiveness: Do You Owe Taxes?
• Paying Off Someone Else's Student Loans

Tax-Free Employer Tuition and Loan Repayment Programs

If your company helps pay for your education, that’s not just nice — it’s potentially tax-free.

Employers can offer up to $5,250 per year in tax-free education assistance, including tuition or student loan repayment. This benefit falls under IRC §127, and both you and your employer save on taxes.

That means:

• You don’t pay income tax on the amount.
• Your employer can deduct it as a business expense.
• The benefit applies whether you’re pursuing a degree or job-related coursework.

You’ll qualify if your employer has a written education assistance plan and your program meets IRS requirements.

Learn more about employer tuition and loan repayment benefits

📘 Get the full breakdown: Employer Benefits PDF
🔗 IRS Guidance: Employer-Provided Educational Assistance

New Filing Responsibilities After Starting School

Starting school may mean filing taxes for the first time or filing differently than before. Income from part-time work, scholarships used for living expenses, or tax credits may affect whether you need to file.

For full filing rules and step-by-step guidance, visit the Filing Taxes as a Student guide.

Tips for First-Time Filers

1. Check dependency status: If someone else (like your parents) claims you as a dependent, you generally can’t claim education credits yourself. They may claim those credits instead.
2. Report scholarships correctly: Some grants are taxable if used for non-tuition expenses.
3. Use free filing tools: Students often qualify for IRS Free File or FileTax.com's no-hassle filing plans.
4. Keep every form: 1098-T, W-2, and any 1099 forms from gig work.
5. Plan ahead for state taxes: Some states also offer education credits or deductions.

If you’re hosting an exchange student, you may even qualify for a special deduction — learn more in our Exchange Student Tax Deduction Guide.

Sources:

• IRS Pub. 501, Dependents
• IRS Pub. 970

How To Claim Education Credits

Step 1: Gather your Form 1098-T and receipts for qualified tuition and fees.
Step 2: Determine eligibility for AOTC or LLC.
Step 3: Complete Form 8863 and attach it to your Form 1040.
Step 4: Double-check your MAGI to ensure you meet income limits.
Step 5: Make sure your parents don't claim you as a dependent on their return.
Step 6: Save all documentation for at least three years.
Step 7: File your return through FileTax.com for fast, accurate filing.

💡 Tip: Even if your parents claim you, they may use your 1098-T to claim the credit on their return. Talk it out before filing!

A Possible Surprise — Tax Refund Offsets for Defaulted Student Loans

Most students won’t deal with this, but it can come as a surprise if you have defaulted on federal student loans. In some cases, the U.S. Department of Treasury can use part or all of your federal tax refund to cover unpaid loan balances through the Treasury Offset Program.

If this applies to you, watch for notices and review your options early so you’re not caught off guard during tax season.

See Student Loan Refund Offsets for full resolution steps.

Your Next Step: Understand Student Tax Rules

Starting school introduces new tax opportunities and responsibilities.

Now that you understand what changes, explore the Student Taxes hub to learn how to file correctly, maximize credits, and avoid mistakes.

• Student Taxes Guide
• Started School Checklist
• Employer Benefits PDF

Wrapping It Up

Starting school changes your taxes — but it can also unlock valuable savings. From education credits and loan deductions to employer tuition benefits, every part of student life can affect your return.

Keep your forms, know your income limits, and use FileTax's tools to make tax filing as painless as possible.

When in doubt, remember: education is an investment — and the IRS rewards that.