August 6, 2021 Update: The Biden Administration has extended the student loan pause until January 31, 2022.
Coronavirus has significantly changed the way we currently live our lives. My wife is a professor at the University of Maryland, and she’s seen first hand the impact it’s had on the university. Many of the classes are now online and students are adjusting to what this means for the rest of the academic year.
The government recently passed the American Rescue Plan following the CARES Act and the Coronavirus Response and Relief Supplemental Appropriations Act which, among other things, provided several areas of relief to current and recent students.
The CARES Act created a $1,200 stimulus check for most American taxpayers, and the second stimulus relief bill created a $600 stimulus check. This third stimulus check under the recently passed American Rescue Plan will give $1,400 to qualifying Americans. The IRS determines your eligibility based on your filing status and your adjusted gross income reported on your latest tax filing. The first and second stimulus payments were issued based on the latest tax return filed (2018 or 2019). Similar to the first and second stimulus check, the IRS will determine eligibility for the third stimulus check based on your last tax return, either 2019 or 2020, and will likely send your economic impact payment to the bank account where your tax refund was deposited.
If you were a student claimed as a dependent on your parents’ tax return, unfortunately, you did not qualify for the first and second stimulus payments. However, if you were not considered a dependent college student (typically aged 19 to 24) and not claimed as a dependent on your parents’ taxes, you may be eligible for a recovery rebate credit for the first and second stimulus payments when you file your 2020 taxes if you received a partial stimulus payment or none at all. If you are not claimed on your parents’ tax return and you filed your taxes (2019 or 2020), you may also be eligible for the third stimulus payment.
Unlike the first and second stimulus payments, under the American Rescue Plan, people may receive the third stimulus payment for all dependents including adult dependents and college students, so if your parents are still claiming you they may be able to get $1,400 in stimulus for you.
The First Stimulus Check
Under the CARES Act, as a single filer, if you earned up to $75,000 a year then you should have qualified for the full $1,200. If you have qualifying dependent children age 16 or younger, you were able to get an additional $500 for each.
If you earned more than $75,000 a year, then your $1,200 benefit was reduced. If you are married filing jointly, the phaseout started at $150,000. The stimulus payment completely phased out at $99,000 for single taxpayers, $136,500 for those filing as Head of Household, and $198,000 for joint filers with no kids.
The Second Stimulus Check
For the second stimulus, as your AGI increased over $75,000 ($150,000 married filing jointly), the stimulus amount went down. The stimulus check rebate completely phased out at $87,000 for single filers with no qualifying dependents and $174,000 for those married filing jointly with no dependents.
The Third Stimulus Check
Under the recently passed American Rescue Plan, families earning less than $150,000 a year and individuals earning less than $75,000 a year should get the full $1,400 per person. While, families earning up to $160,000 per year and individuals earning up to $80,000 per year will receive partial amounts.
What if you didn’t receive the full amount of the first and second stimulus checks but were eligible?
If you didn’t receive the full stimulus payment for the first and/or second stimulus check but were eligible, when you file your 2020 tax return (the one you file in 202) you may be eligible for the Recovery Rebate Credit.
You may be thinking, what is a Recovery Rebate Credit? It was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and individuals who did not receive the full amount for the first or second stimulus check can claim this credit when filing their 2020 tax return.
Federal Student Loan Relief
Most of the benefits for college students and graduates are around student loans. If you have a federally owned student loan, all loan and interest payments were deferred through September 30th, 2020 without penalty under the CARES Act, and then The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 further deferred loan and interest payments until January 31, 2021. President Biden’s January executive order also further extended the suspension of federal student loan payments and interest through the end of September 2021.
On August 6th the Biden Administration passed the final extension of the pause on Federal student loan repayment, interest, and collections until January 31, 2022.
The pause includes the following relief for eligible student loans:
- Suspension of loan payments
- 0% interest rate
- Stopped collections on defaulted loans
Note: You do not have to pay a fee to get 0% interest or suspended payments for federal student loans.
Technically your loan is automatically placed in “administrative forbearance,” which means you can stop making payments if you wish. Forbearance is typically offered during a time of hardship, which this certainly is, and in this case, your student loans will also have their interest rate dropped to zero.
Any payments you make during that period will be applied entirely to your balance and making a payment doesn’t take your loan out of the administrative forbearance status. Thus, you can make payments but you don’t have to.
The CARES Act also suspended the usage limits on federal loans if you were not able to complete the academic term because of school closures. Many loans have duration limits, which means you have to use those funds within a set period, but with schools being closed indefinitely, those limits have been suspended.
The American Rescue Plan signed into law on March 11, 2021 also provides relief to students with government and federal student loans by allowing students with forgiven loan debt to exclude the discharged debt from their taxable income for tax years 2021 through 2025.
The provision does not apply to loans made by private lenders.
Are you a self-supporting student?
In the eyes of the IRS, a self-supporting student is someone who cannot be claimed as a dependent on their parents’ (or someone else’s) tax return. So, check with your parents or guardians to see if they claimed you as a dependent.
Generally speaking, a single self-supporting student could receive the full stimulus checks. If you are a student and you are married and filing a joint return, both you and your spouse may qualify for stimulus or the recovery rebate credit if you and your spouse cannot be claimed as a dependent. If you have dependent children, you could also get additional payments for each qualifying child.
Does filing my taxes as an independent, self-supporting student, affect my FAFSA?
Dependency status as defined by the IRS for federal income tax returns purposes and on the Free Application for Federal Student Aid (FAFSA) are not related. While the two do share some similarities, each have their own definitions of the term “dependent”.
There are circumstances where you could be a dependent for tax purposes but not when filing FAFSA. The questions you answer on the FAFSA form will help determine whether you are considered a dependent or independent student for their purposes.
Work-Study Funds Become Grants
If you were receiving a work-study wage through the Federal Work-Study program but can’t earn them because your school is suspended, the CARES Act turned it into a supplemental grant that can be paid to you. The program is the Federal Supplemental Educational Opportunity Grants (FSEOG), and the CARES Act permitted colleges to pay that out to you as emergency financial aid.
If the closures continue, the CARES Act permits colleges to continue paying Federal Work-Study students for up to a year even if the school is closed. The amount will be based on the scheduled hours, not previously worked hours, and can be disbursed in one payment or over a series of payments.
If you worked part-time or full-time while going to college and were laid off, you may have been eligible for expanded unemployment provided by the CARES Act and further continued by the second stimulus bill. Under the CARES Act, unemployment was increased by $600 weekly for four months through July 31 and was even expanded to those who were previously not eligible for unemployment including part-time employees, freelancers, independent contractors, gig workers, and the self-employed.
However, under the second stimulus relief bill, unemployment benefits were set at $300 for an additional 11 weeks of Federal unemployment benefits until March 14th, 2021. But if you had not maxed out your benefits, then the extension could continue until April 5th, 2021.
Moreover, the second stimulus relief bill afforded an additional $100 a week to earners who have a mix of income types. If you earn your income both as an employee and a freelancer or a contractor (doing side gig work for example) you fall into this “mixed earners” category. Certain workers who have at least $5,000 per year in self-employment income, but are disqualified from receiving Pandemic Unemployment Assistance (PUA) because they also have an employer, could be eligible for the additional $100 per week in unemployment benefits.
Under the recently passed American Rescue Plan, unemployment payments will increase by $300 per week, and the benefits will be extended through September 6, 2021. The bill also makes the first $10,200 of unemployment tax-free for households with income less than $150,000. This provision is retroactive to tax year 2020 (the taxes you file in 2021).
Don’t worry about knowing how to figure out the tax free portion of your unemployment benefits received in 2020, TurboTax will be up to date based on IRS guidance.
Don’t miss out on money that could be due to you
Every year the IRS announces that they have over $1 billion in unclaimed tax refunds from people not filing. Much of the unclaimed refunds belong to college students who had taxes withheld and who are eligible for some refundable tax credits.
Even if you were claimed as a dependent and don’t qualify for a Recovery Rebate Credit, you could potentially be due a refund on overheld taxes from income you earned. You could even qualify for other education tax credits like the American Opportunity Tax Credit.
Your college classes may have unfortunately been moved online during this time, and you may be considering enrolling in another semester of classes which will most likely also be online. Although you didn’t get to take advantage of all the amenities available on campus for the entire school year, don’t forget that when you file your taxes you may still be eligible for education tax breaks for online college classes. You may be able to claim the American Opportunity Tax Credit worth up to $2,500 for the first four years of college or the Lifetime Learning Credit worth up to $2,000 per tax return even if you take one class.
We’ve Got You Covered
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If you have questions when you sit down to do your taxes, you can connect live via one-way video to a TurboTax Live tax expert with an average 12 years experience to get your tax questions answered. TurboTax Live tax experts can also review, sign, and file your tax return or new this year, you can fully hand your taxes over to them from the comfort of your home. TurboTax Live tax experts are available year-round in English and Spanish.
You can find the latest information on the tax changes and announcements in response to COVID-19, here.