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How Taxes Work

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How Taxes Work

student sitting at desk tax photo

We know taxes can be tough to understand and navigate as a college student. That's why we've provided common info below! Ask Your MoneyCoach if you have more questions. Remember, MoneyCoaches are not tax professionals and cannot give tax filing advice.

Not Sure Where to Start?

Check out the Internal Revenue Service's (IRS) webpage dedicated for college students!

Visit the IRS Student Page

You Can File for Free!

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $56,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns. Internal Revenue Service-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals.

The United Way of Norman has several free tax help resources available. Click below to go to the United Way's website to learn more about the resources they offer.

Free Tax Help - VITA Program      Free Tax Help - United Way

Tax Basics for Teens and Young Adults

Common Tax Forms

All information below was sourced from the official Internal Revenue Service website.

In short, this is the form your job must complete in order to pay you. Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:

  • Income, social security, or Medicare tax was withheld.
  • Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate.

For more information about Form W-2, visit the Internal Revenue Service website here.

Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes. 

For more information on Form W-4 , visit the Internal Revenue Service website here.

In short, this is the form you'd complete if you work as a freelancer or independent contractor. If you made or received a payment during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS. File Form 1099-NEC for each person to whom you have paid during the year:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in:
    • Rents.
    • Services performed by someone who is not your employee.
    • Prizes and awards.
    • Other income payments.
    • Medical and health care payments.
    • Crop insurance proceeds.
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
    • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
    • Payments to an attorney.
    • Any fishing boat proceeds.

In addition, use Form 1099-NEC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. 

For more information about Form 1099, visit the Internal Revenue Service website here.

Form 1040 is used by U.S. taxpayers to file an annual income tax return.

A Tax Return Transcript shows most line items including your adjusted gross income (AGI) from your original tax return (Form 1040, 1040A or 1040EZ) as filed, along with any forms and schedules. It doesn’t show changes made after you filed your original return. This transcript is only available for the current tax year and returns processed during the prior three years. A tax return transcript usually meets the needs of lending institutions offering mortgages and student loans. Note: the secondary spouse on a joint return must use Get Transcript Online or Form 4506-T to request this transcript type. When using Get Transcript by Mail or phone, the primary taxpayer on the return must make the request. 

For more information about your tax transcript, visit the Internal Revenue Service website here.

Common Tax Terms

All information below was sourced from the official Internal Revenue Service website, located here.

Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Your AGI will never be more than your Gross Total Income on you return and in some cases may be lower.

For more information about AGI, visit the Internal Revenue Service website here.

An individual's net income is used to determine how much income tax is owed. For an individual, gross income minus taxes, allowances, and deductions. 

Tax deductions can help you not have to pay as much income tax. Subtract tax deductions from your income before you figure the amount of tax you owe. Tax deductions can include work related deductions, itemized deductions, education deductions, health care deductions, and investment related deductions.

For more information about tax deductions, visit the Internal Revenue Service website here.

In short, tax witholding is the money automatically taken from your paycheck and sent to the IRS to fund our government. If you're an employee, your employer probably withholds income tax from your paycheck and pays it to the IRS in your name. If you don’t pay your taxes through withholding, or don’t pay enough tax that way, you may have to pay estimated tax. People who are self-employed generally pay their tax this way. 

Avoid a surprise at tax time and check your withholding amount. Too little can lead to a tax bill or penalty. Too much can mean you won’t have use of the money until you receive a tax refund.

For more information about tax withholdings, visit the Internal Revenue Service website here.

Disclaimer: The MoneyCoach team and University of Oklahoma staff who work with students on financial issues such as federal student aid, private student aid and serving loans do not provide investment, legal, or tax advice. The information provided is for general educational purposes only, and is not intended to substitute for the advice of your investment, legal, and/or tax advisors or to be the basis of specific financial planning activities. If you need investment, legal, and/or tax advice, please consult with one of these professionals