9 Your Taxes
Taxes are how the government funds public services like education, infrastructure, and healthcare. When you earn income, receive scholarships or grants, or even buy things, you will be expected to pay taxes. Failing to manage taxes properly can lead to penalties, but understanding them can help you save money and avoid trouble.
As a student, there are several types of taxes you’ll encounter:
- Income Tax: If you have a job, you’ll likely need to pay federal and possibly state income tax. The amount you pay depends on your income, tax bracket, and the deductions or credits you qualify for.
- Example: If you work part-time and earn $5,000 in a year, you may owe federal income tax depending on your total earnings and your tax-filing status.
- Payroll Taxes: These taxes are automatically deducted from your paycheck and include Social Security and Medicare taxes.
- Example: For every paycheck you receive, you’ll see deductions labeled as FICA (Federal Insurance Contributions Act). These funds go towards your future Social Security and Medicare benefits.
- Sales Tax: This is added to the price of goods and services you buy, like textbooks, clothing, or food. It varies by state and sometimes even by city.
- Example: In Idaho, the sales tax rate is 6%, so for every $100 you spend, you’ll pay an additional $6 in sales tax.
- Scholarships and Financial Aid Taxes: Scholarships used for tuition and fees are generally tax-free, but scholarships or grants used for room and board or other personal expenses may be taxable.
- Example: If you receive a $2,000 scholarship that covers tuition, it won’t be taxed. However, if you receive a $1,000 stipend for living expenses, you may need to report it as income.
