Pursuing higher education in the United States can be a costly endeavor, but there are ways to make it more manageable. One effective strategy is to work legally while studying, allowing students to earn a living, gain valuable work experience, and offset the expenses associated with tuition fees, living costs, and other necessities.
This guide provides an overview of the legal ways to work while studying in the USA, helping students to balance their academic responsibilities with financial responsibilities and achieve their educational goals.
College costs a lot of money. To make it easier for students and their parents, the IRS gives five ways to help with paying for education.
1. American Opportunity Tax Credit (Aotc)
Parents and students can get financial help to pay for the first four years of college. The American Recovery and Reinvestment Act changes the Hope Credit for 2009 and 2010, so more people can use it.
If you qualify, you might get up to $2,500 per student each year. And even if you don’t owe any taxes, you could still get up to $1,000 back.
2. Hope Credit
Sure! This is about getting help with paying for the first two years of college. It’s called the Hope Credit, and it can help students and parents cover some of the costs. It mostly works for taxes from 2008 and earlier.
But in 2009, there’s a special version of the Hope Credit that’s bigger, up to $3,600. You can get this if you’re a student going to college in an area hit by a disaster in the Midwest. Just remember, you can’t claim this special credit if you’re already claiming a different credit for another student in 2009.
3. Lifetime Learning Credit
You can get financial aid for different types of college courses, even if you’re in school for many years. If you qualify, you could receive $2,000 to $4,000 per tax return, especially if you’re studying in a Midwestern area affected by a disaster.
4. Enhanced Benefits for 529 College Savings Plans
Starting in 2009 and 2010, a law says you can use a 529 plan to pay for certain computer stuff for college. This includes things like computers, internet, and services related to them.
5. Tuition and Fees Deduction
Students and their parents can get money off their taxes if they spend money on college tuition and related stuff, like books. They can get up to $4,000 off their taxable income. This helps them pay less in taxes.
If you can’t get other tax credits like the AOTC, Hope, or Lifetime Learning Credits, this one might help you.
You can’t get both the AOTC and the Hope or Lifetime Learning Credits for the same student in one year. Also, if you use the Tuition and Fees Deduction, you can’t use any of these credits in the same year for the same student.
To get these tax credits, you need to pay for college for yourself, your spouse, or someone you claim as a dependent. The parent or the student can get the credit, but not both. And if someone claims you as a dependent, you can’t get the credit.
For more details, you can check out Publication 970, Tax Benefits for Education. You can find it online at IRS.gov or call the IRS at 800-TAX-FORM (800-829-3676).
Credits
An education credit is like a discount on your taxes that helps pay for college. If the credit makes your tax bill lower than zero, you might even get money back. There are two types of education credits: the AOTC and the Lifetime Learning Credit.
Who Can Claim an Education Credit?
If you want to get certain tax credits for education expenses, you have to follow some rules:
- You, your kid, or someone else pays for education expenses for college.
- The student going to college must be enrolled in a school that’s allowed for these credits.
- The student must be you, your spouse, or a kid you claim on your taxes.
If you’re eligible for both the Lifetime Learning Credit and the American Opportunity Tax Credit (AOTC) for the same student in the same year, you can only pick one.
You can’t have both. Also, if you weren’t a U.S. resident for tax purposes, you can’t get the AOTC unless you choose to be taxed as a resident. Both you and the student need valid Social Security numbers or Individual Taxpayer Identification Numbers before you can claim the AOTC.
Tuition and Fees Deduction
According to a law passed on December 18, 2015, you can keep deducting your tuition and fees on your taxes. This means you can lower the amount of money you have to pay taxes on by up to $4,000. You can do this even if you don’t list out all your expenses on your tax form.
You can only use this deduction if you’re not married and filing taxes separately, and if no one else is claiming you as a dependent on their tax return. Also, the money you’re deducting must have been spent on higher education.
But here’s the thing: you have options. Instead of using this deduction, you might be able to use education credits, like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit.
You can’t use both the deduction and the credits for the same expense, though. So you’ll want to figure out which one saves you more money on taxes.
Student Loan Interest Deduction
Usually, you can’t deduct the interest you pay on loans from your taxes, except for certain home loans. But, if you earn less than $80,000 a year (or $160,000 if you’re married and file taxes together), you might be able to deduct the interest you paid on a student loan.
This deduction is for the interest you paid on a loan used for college or other higher education expenses. It covers both the interest you had to pay and any extra payments you made voluntarily.
For most people, your modified adjusted gross income (MAGI) is your income before taking out the deduction for student loan interest on your federal tax return. This deduction can lower the amount of your income that gets taxed by up to $2,500.
You can take this deduction even if you don’t itemize deductions on your tax form. It’s called an “adjustment to income.”
Qualified Student Loan
This loan is for paying education expenses (explained later) that were:
- For you, your spouse, or someone who was your dependent when you got the loan
- Paid or owed around the time you got the loan
- For education during a school term for a student who qualifies
Loans from these sources don’t count as qualified student loans:
- A relative
- An employer plan
Qualified Education Expenses
For the student loan interest deduction, these expenses include the total costs of attending a qualified school, like graduate school. These costs cover:
- Tuition and fees
- Room and board
- Books, supplies, and equipment
- Other necessary expenses (like transportation)
The cost of room and board is eligible only if it does not exceed either:
- The room and board allowance set by the school for financial aid purposes for the student’s living arrangement and academic period, or
- The actual amount charged if the student lives in housing owned or operated by the school
Business Deduction for Work-related Education
If you’re an employee and can itemize your deductions, you might be able to deduct expenses for work-related education. You can deduct the amount of these expenses plus other job-related costs that are more than 2% of your adjusted gross income. Itemizing deductions can lower your taxable income.
If you’re self-employed, you can directly deduct your work-related education expenses from your self-employment income, which lowers both your income tax and self-employment tax.
Your education expenses might also qualify you for other tax benefits like the American Opportunity Tax Credit (AOTC), the Tuition and Fees Deduction, and the Lifetime Learning Credit.
You can get these benefits even if you don’t qualify for the work-related education deduction. However, you can’t claim both the work-related education deduction and the Tuition and Fees Deduction or an education credit for the same expense.
To deduct work-related education expenses as a business expense, you must:
- Be working
- Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you’re an employee
- File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you’re self-employed
- Have education expenses that meet the requirements for Qualifying Work-Related Education
Qualifying Work-related Education
You can deduct the costs of work-related education as business expenses if the education meets at least one of these conditions:
- Your employer or the law requires the education to keep your current job, salary, or status, and it serves a genuine business purpose for your employer.
- The education helps maintain or improve skills needed in your current job.
However, even if the education meets one or both of these conditions, it does not qualify if:
- It is needed to meet the basic educational requirements of your current job.
- It is part of a program that will qualify you for a new job or career.
You can deduct these education costs as a business expense even if the education could lead to a degree.
Education Required by Employer or by Law
Education needed to meet the basic requirements for your current job is not considered qualifying work-related education. Once you have met these basic requirements, your employer or the law may require you to get more education.
This additional education counts as qualifying work-related education if it meets all three of the following conditions:
- It is required to keep your current salary, status, or job.
- It serves a business purpose for your employer.
- It is not part of a program that will qualify you for a new trade or business.
If you get more education than what your employer or the law requires, it can still be considered qualifying work-related education if it maintains or improves the skills you need for your current job.
Education to Maintain or Improve Skills
If your education isn’t required by your employer or by law, it can still count as work-related education if it helps you keep or improve the skills you need for your current job. This could include refresher courses, courses on new developments in your field, and academic or vocational courses.
Qualified Tuition Programs (Qtp)
States can set up and run programs that let you either prepay or save money in an account to pay for a student’s college expenses. Colleges can also have programs that let you prepay for these expenses.
If you prepay, the student will get a waiver or payment for their college costs. You can’t get a tax deduction for these payments or savings.
To learn more about a specific program, contact the state agency or college that offers it.
You don’t have to pay tax on money taken out from one of these programs unless the amount is more than the student’s qualified education expenses.
These expenses include tuition, fees, books, supplies, and equipment like computers and software if they are mainly for the student. If the student is at least half-time, room and board can also be included.
Coverdell Education Savings Account (Esa)
A Coverdell ESA (Education Savings Account) can be used to pay for approved education expenses for both college and grades K-12.
However, there are income limits for those who contribute, and the total contributions for one beneficiary can’t exceed $2,000 per year, even if there are multiple accounts. The beneficiary must be under 18 or have special needs.
You don’t get a tax deduction for putting money into a Coverdell ESA, but the money in the account grows tax-free until it’s taken out. The beneficiary won’t owe taxes on the money if it’s used for approved education expenses at an eligible school. This applies to both college expenses and K-12 expenses.
Here are some key points about taking money out of a Coverdell ESA:
- Withdrawals are tax-free if used for approved education costs like tuition, fees, required books, supplies, and room and board.
- There’s no tax on withdrawals if they are used for attending an eligible school. This includes public, private, and religious schools providing elementary or secondary education, as well as most accredited colleges and universities.
- You can claim education tax credits in the same year you take a tax-free withdrawal from a Coverdell ESA, as long as you don’t use the same expenses for both benefits.
- If you withdraw more than the approved education expenses, the extra amount will be taxable and usually subject to an additional 10% tax. Exceptions to this extra tax include the beneficiary’s death, disability, or if they receive a qualified scholarship.
Scholarships and Fellowships
A scholarship is money given to a student at a school or university to help with their studies. This can be for someone in college (undergraduate) or someone in graduate school. A fellowship is money given to someone to help with their studies or research.
Whether the money from a scholarship or fellowship is tax-free depends on how it is used and if you are a student seeking a degree.
A scholarship or fellowship is tax-free if:
- You are studying for a degree at an eligible school.
- You use the money to pay for approved education expenses.
Qualified Education Expenses
For tax-free scholarships and fellowships, these are the covered expenses:
- Tuition and fees needed to enroll in or attend an eligible school.
- Course-related costs like fees, books, supplies, and equipment required for your classes at the eligible school. These must be needed for all students in your course.
But, for these expenses to qualify, the scholarship or fellowship can’t say it has to be used for other things, like room and board, or that it can’t be used for tuition or course-related costs.
Expenses That Don’t Qualify
School bills don’t cover:
- Living and eating costs
- Travel
- Research
- Paying someone to help with office work
- Things like gear that you don’t need for school
- Even if you have to pay these to the school, they’re not counted. If you use scholarships or fellowships to pay for these, you’ll have to pay taxes on that money.
Exclusions From Income
You don’t have to pay taxes on some types of help you get for education. But, you can’t use these tax-free education payments to get other tax breaks, like the Lifetime Learning Credit.
Employer-provided Educational Assistance
If your job helps you with school costs, you don’t have to pay taxes on up to $5,250 of that help each year. So, when your employer gives you your tax form, they shouldn’t count that money as part of your earnings.
Educational Assistance Program
To be considered an educational help program, the plan needs to be written down and fulfill specific rules. Your employer can let you know if there’s a program like this at your workplace.
Educational Assistance Benefits
Tax-free educational assistance means you won’t have to pay taxes on certain things related to education. These include money for things like tuition, books, supplies, and equipment for both undergrad and grad courses. It doesn’t matter if the courses are related to your job or not.
But there are some things this doesn’t cover:
- Food, a place to stay, or getting to and from your classes
- Tools or supplies you get to keep after finishing the course, except for textbooks
- Classes about sports, games, or hobbies, unless they’re directly related to your job or needed for a degree program
Benefits Over $5,250
If your boss spends more than $5,250 on your education in a year, you usually have to pay taxes on the extra amount. They’ll add that extra money to your total earnings on your W-2 form.
Working Condition Fringe Benefit
If the extra stuff you get from your job is worth more than $5,250 and it’s something you’d usually have to pay for yourself, your boss doesn’t have to count it as part of your pay. This kind of benefit is called a working condition fringe benefit.
You can learn more about these benefits in chapter 2 of Publication 15-B, which is a guide for employers about fringe benefits.
Educator Expense Deduction
Teachers can take off up to $250 ($500 if married and both qualify) from what they spend on work stuff.
They can do this even if they don’t list all their expenses. To get this, you need to be a teacher, counselor, or similar, working at least 900 hours a year in a school for grades K-12. You can claim things like books, supplies, and computer stuff you use in class.
You can also claim expenses for training courses. If you teach sports classes, you can claim sports supplies too. Check the IRS website for more info on this deduction.
FAQs
1. Can international students work while studying in the USA?
Yes, international students can work legally in the USA while studying, but there are certain restrictions and guidelines they must follow.
2. What types of work are allowed for international students in the USA?
International students in the USA can typically work on-campus part-time during the academic year and full-time during breaks. They may also be eligible for certain off-campus employment opportunities through Curricular Practical Training (CPT) or Optional Practical Training (OPT) programs.
3. Are there limitations on the number of hours international students can work?
Yes, during the academic year, international students are generally limited to working up to 20 hours per week on-campus. However, during breaks and vacations, they may work full-time on-campus. Off-campus employment through CPT or OPT programs may have different hour restrictions.
4. Do international students need special authorization to work in the USA?
Yes, international students typically need authorization from their designated school official (DSO) for on-campus employment and from the U.S. Citizenship and Immigration Services (USCIS) for off-campus employment through CPT or OPT.
5. Can international students work off-campus for any employer?
No, international students can only work off-campus if they have received proper authorization through CPT or OPT and if the employment is related to their field of study. Working off-campus without authorization can result in serious immigration consequences.