New college graduates will face some of the harsh realities of adulthood, including paying taxes, filing their own tax returns and possibly coordinating with their parents to achieve the best overall family tax results. Here are answers to graduates’ most common tax questions.

Can My Parents Claim Me as a Dependent?

Under the current rules, you’re a so-called “qualifying child” of your parents and, therefore, their dependent for the year if you meet the following four requirements:

1. You’ll be under age 24 at year end,
2. You were a full-time student for some part of at least five months during the year,
3. You don’t pay more than half of your own support for the year, and
4. You have the same principal place of residence as your parents for more than half the year, excluding temporary absences while you were in school.

If all those requirements aren’t met, your parents can still claim you as a so-called “qualifying relative” dependent for 2025 if:

• Your gross income for the year is less than $5,200, and
• Your parents pay more than half of your support for the year.

If My Parents Claim Me as a Dependent, Do I Need to File a Tax Return?

Most dependents still must file federal income tax returns to report their taxable income. However, they usually owe little or no federal income tax. Why? First, a dependent can claim a standard deduction against gross income to arrive at taxable income. For an unmarried dependent, the standard deduction for 2025 is the greater of:

• $1,350, or
• Earned income for the year, plus $450, up to a maximum of $15,000.

If a dependent’s gross income exceeds the standard deduction, the tax rate on the first $11,925 is only 10%.

Important: Earned income for this purpose includes salaries, wages, tips, professional fees and other amounts paid for work the dependent performs. It also includes any part of a taxable scholarship or fellowship grant. (See “Less-Common Tax Issues” below.)

For example, 22-year-old Percy graduated in May 2025. He starts a job in September 2025, collecting a salary of $25,000 for the year. He has no other income for 2025. Percy’s parents pay more than half of his support for the year, including his education costs and living expenses before he started his job. Therefore, Percy is his parents’ qualifying child and, therefore, their dependent for 2025.

Assuming Percy isn’t eligible for any other tax breaks, his 2025 taxable income will be $10,000 ($25,000 minus $15,000). His federal income tax bill will be $1,000 (10% of $10,000). However, it’s possible that Percy could qualify for an education tax credit that would lower his 2025 tax obligation.

Can I Claim a Tax Break for Student Loan Repayments?

If you’re eligible, you can deduct the lesser of $2,500 or the amount of student loan interest you actually paid during the year. To be eligible, your modified adjusted gross income (MAGI) must be below a certain threshold.

For 2025, the MAGI threshold for single taxpayers is up to $85,000 for the full deduction, with a phaseout ending at $100,000. For married couples filing jointly, the MAGI threshold is up to $170,000 for the full deduction, with a phaseout ending at $200,000.

Who’s Eligible for Education Credits — and Who Should Claim Them?  

There are two higher education federal income tax credits: the American Opportunity credit and the Lifetime Learning credit. You can’t claim both credits for the same student’s expenses in the same year. In addition, both credits are phased out (reduced or completely eliminated) at higher income levels.

For 2025, the credits are phased out for MAGI between the following ranges:

• $80,000 and $90,000 for single taxpayers, and
• $160,000 and $180,000 for married couples who file jointly.

Should you claim education credits, or should your parents claim them? If your parents’ MAGI falls below the lower end of the applicable threshold, it usually makes sense for them to claim the credits (assuming they’re in a higher tax bracket than you are). However, if your parents’ MAGI exceeds the upper end of the applicable threshold, you can claim the credits (assuming your income isn’t too high) because the credits are completely phased out for your parents.

Here’s a closer look at these education credits:

American Opportunity Credit. This credit equals 100% of the first $2,000 of qualified undergraduate education expenses, plus 25% of the next $2,000. The maximum credit is $2,500 per year for a maximum of four years per student. Qualified expenses include:

• Tuition,
• Mandatory enrollment fees, and
• Course materials.

You can’t count room and board costs or optional fees, such as expenses related to student activities, athletics and health insurance. Qualified expenses are eligible for the credit if you haven’t already completed four years of undergraduate work as of the beginning of the tax year.

This credit is allowed only for a year during which you carry, for at least one academic period beginning in that year, at least half of a full-time course load in a program that would ultimately result in an undergraduate degree or other recognized credential. You can use the credit to offset your entire federal income tax bill. After reducing your federal income tax bill to zero, 40% of any leftover credit amount is refundable, subject to a refundable limit of $1,000.

Lifetime Learning Credit. This credit equals 20% of up to $10,000 of qualified education expenses, for a maximum credit of $2,000 yearly. Unlike the American Opportunity credit, there’s no limit on the number of years the Lifetime Learning credit can be claimed and no course-load requirement. It can be used to help offset costs for undergraduate study that drags on for more than four years, for undergraduate years with light course loads or for graduate school courses.

The maximum amount of annual expenses for which the Lifetime Learning credit can be claimed is limited to $10,000, regardless of how many students are in the family. Qualified expenses include college tuition and mandatory enrollment fees. Room, board and optional fees are off limits.

Let’s return to our hypothetical example and assume that Percy qualifies for the $2,500 American Opportunity tax credit because 2025 is the fourth year of his undergraduate study. If he claims the credit, the first $1,000 eliminates his federal income tax liability. Of the remaining $1,500, $600 is refundable (40% of $1,500). The rest of the credit ($900) disappears.

Alternatively, Percy’s parents can claim him as a dependent on their joint tax return. If their income allows them to collect the full $2,500 American Opportunity credit, Percy could agree to let them claim him as their dependent on their 2025 tax return, which in turn allows them to collect the full $2,500 American Opportunity credit.

Important: Under the facts in this hypothetical example, the deciding factor in whether Percy’s parents claim him as a dependent is who can claim the bigger American Opportunity credit.

Uncle Sam Welcomes You to Adulthood

Taxes are an inevitable financial fact of life. Between figuring out if your parents can still claim you, understanding deductions, and cashing in on education credits and other possible tax breaks, there’s a lot to wrap your head around. While we’ve covered some of the most common questions, the tax world is full of twists and turns. The smartest move? Team up with a us. We can help you and your family make the most of the situation.