Whether you are an out-of-state student attending school in Utah, or a Utah resident going to school in another state, filing state income tax returns can be confusing.
A nonresident student generally must file two returns – one with the state in which the student is attending school (Utah) and another with his or her home state.
On the Utah return, the student must report ALL income earned (federal adjusted gross income), not just income from Utah. On the TC-40C, the student computes the Utah income and the total income to determine the Utah income ratio (percentage) for line 15 of the Utah return, TC-40. The student then uses the Utah income ratio (percentage) to calculate tax due to Utah.
To avoid double-taxation, the student's resident state will generally give the student credit for tax paid to Utah on income that is taxed in both states.
A California resident attends the University of Utah. Here is his income for the year:
$ 2,000 – part-time job in Utah
$ 5,000 – earned in California during summer break
$ 3,000 – federal taxable
portion of U of U scholarship
$10,000 – total taxable income, 1/2 Utah, 1/2 California
In this case, on the Utah TC-40 tax return, the student would start with the entire income, $10,000. The student would take his applicable deductions and exemptions and calculate Utah tax, as if everything was earned in Utah. He would use the TC-40C to compute the portion of income earned in Utah, 50 percent (5,000 divided by 10,000). Because half of that income is from Utah, he would divide the tax amount by half. In addition, the student would file a California resident return reporting all of the income. To avoid double taxation, the student would also claim the Utah tax paid as a credit for taxes paid to another state on his California resident return on the income that is taxed in both states.
An Oregon resident attends the University of Utah. Here are her earnings for the year:
$ 2,000 – part-time job in Utah
$ 5,000 – earned in Oregon during summer break
$ 3,000 – taxable portion
of Oregon Elks Lodge scholarship
$10,000 – total income
Here is how the income is divided:
$8,000 – Oregon
$2,000 – Utah
The $3,000 taxable portion of the scholarship is allocated to Oregon because the income is from Oregon. The Utah income of this student, then, is 20 percent of her income of $10,000. In this case, she would be required to file a Utah TC-40 tax return. On the Utah TC-40 tax return, the student would start with the entire income, $10,000. The student would take her applicable deductions and exemptions and calculate Utah tax, as if everything was earned in Utah. On TC-40C, she would compute the portion of income earned in Utah, 20 percent (2,000 divided by 10,000). Because 20 percent of the income is from Utah, she would multiply the Utah tax amount by 20 percent. The nonresident student would then file an Oregon resident return claiming all the income. To avoid double taxation, the student would also claim the Utah tax paid as a credit for taxes paid to another state on her Oregon return for the income taxed in both states.
Utah residents who attend non-Utah schools also must pay taxes to Utah on both income from Utah and income earned in the state in which they attend school. Utah residents who attend non-Utah schools do not lose their residency solely by being absent from Utah. They are still required to file resident income tax returns in Utah on all income, regardless of source.
If a student pays an income tax to another state on income received while attending an out-of-state school, Utah will allow a credit for the tax paid to the other state on the income that is taxed in both states.
A Utah resident attends the University of Arizona. Here is her income:
$ 2,000 – part-time job in Arizona
$ 5,000 – earned in Utah during summer break
$ 1,500 – taxable portion
of scholarship from Univ. of AZ
$ 8,500 – total income
Here is how the income is divided:
$3,500 – Arizona portion
$5,000 – Utah portion
In this case, the student must file a full-year Utah resident return. If she filed and paid taxes to Arizona on the income earned in that state, she would be allowed a credit on her Utah return for taxes paid to Arizona or the allowable calculated credit, whichever is less. The Arizona portion of her income is 41.18 percent. She would file a Utah TC-40 tax return and she would compute Utah tax on the full $8,500, as though it was all earned in Utah. On TC-40A, she would multiply the Utah tax by .4118 – the Arizona portion of her income – to compute her allowable credit.
A Utah resident attends school at Idaho State University. Here is his income for the year:
$ 3,000 – part-time job in Idaho
$ 5,000 – earned in Utah during summer break
$ 2,000 – taxable
portion of scholarship from Utah Elks Lodge
$10,000 – total income
Here is how the income is divided:
$3,000 – Idaho portion
$7,000 – Utah portion
In this case, the student must file a full-year Utah resident return. If he filed and paid taxes to Idaho on the $3,000 wages earned in Idaho, he would be allowed a credit on his Utah return for taxes paid to Idaho or the allowable calculated credit, whichever is less (as calculated on TC-40A). In this case, the $2,000 taxable portion of the scholarship would not be taxed by Idaho because it was received by the student from a non-Idaho source. The student's Idaho income is 30 percent of the total. He would be required to file a Utah TC-40 tax return and compute Utah tax on the full $10,000. On TC-40A, he would multiply the Utah tax by .3000 – the percentage of Idaho income – to arrive at the allowable credit.
A Utah resident attends the University of Nevada at Las Vegas and has a part-time job earning $2,000 a year. During the summer break he returns to Utah and earns $5,000. He would be required to file a Utah TC-40 resident tax return and pay Utah tax on the full $7,000. In this case, the student would not be allowed a credit for taxes paid to Nevada because Nevada does not have a state income tax.
