When students hear about a new federal tax bill, the first question is often simple: Will this cost me money? While tax legislation can sound complicated, understanding a few key changes can help students avoid surprises when they start earning income.
We spoke with UTC Accounting Professor Steve Davenport to break down what the latest tax changes mean for college students and recent graduates, and how it might impact their paychecks, student loans and financial planning.
The big picture: What the new tax bill actually does
Q: In simple terms, what does this new tax bill do, and why are people saying it could cost them more?
Davenport: One thing I always tell people is don’t believe everything you read about taxes on social media. Taxes are very situational. What applies to one person might not apply to someone else.
The new bill mostly makes changes from the 2017 tax law permanent. At the time, Congress increased the standard deduction and removed personal exemptions, but those changes were scheduled to expire in 2025. This new law essentially keeps those provisions in place.
Because tax laws have to be revenue-neutral, if someone gets a benefit, someone else is usually paying more somewhere else in the system. But in reality, most people won’t see a dramatic difference. Depending on individual circumstances, some taxpayers may pay a little more and others a little less.
Q: What is one change in the bill that a college student might actually notice?
Davenport: One area students are hearing about involves student loan limits. The law sets different borrowing limits depending on whether a graduate degree is classified as a professional degree.
For professional programs, students can borrow up to about $50,000 per year with a $200,000 lifetime cap. For other graduate degrees, the limit is roughly $20,000 per year with a $100,000 cap. In practical terms, it just limits how much students can borrow for graduate school.
Check out the UTC financial aid and scholarships page to learn more.
Another change that could affect students is the new rule eliminating taxes on tips. For students working in jobs like serving, delivery or rideshare driving, that could make a difference.
If someone is working as an Uber driver or doing delivery services, they are technically self-employed. That means they normally pay both income tax and self-employment taxes, including Social Security and Medicare. If tips are excluded from taxable income, that could significantly reduce how much tax they owe.
There are also provisions related to overtime pay. The extra portion earned from overtime may appear on a W-2 but may not be subject to income tax. For 2025, employers were not required to report overtime on the W-2, so students might need their final paystub to calculate the overtime exclusion when filing 2025 taxes. For 2026-2028, employers are required to report overtime on Form W-2. The exclusion of tips and overtime are scheduled to expire in 2028, so it could possibly only provide a benefit for a few years.
Your first paycheck: Steps to help reduce the chance of owing taxes later
Q: How could this bill affect a recent graduate’s take-home pay? Are there changes to tax brackets or deductions students should know about?
Davenport: The law made the larger standard deduction permanent. For single taxpayers, that amount is now more than $15,000, and it increases slightly each year with inflation.
It also expanded some of the lower tax brackets. One thing people often misunderstand is that the U.S. uses a graduated tax system. If you move into a higher bracket, only the income above that threshold is taxed at the higher rate, not your entire income.
For example, if you move into the 22% tax bracket, only the portion of your income above the cutoff is taxed at 22%. Understanding where those thresholds fall can help people anticipate how much tax will actually be withheld from their paychecks.
Q: What is one thing every student should do when they start earning income to prepare for taxes later?
Davenport: The biggest thing is simply becoming aware of how withholding works.
If you have only one job, the W-4 form you complete when you start working is usually fairly accurate for withholding taxes. But problems can arise if students work multiple jobs.
Each employer assumes you will claim the full standard deduction. So, if you have three different jobs earning $10,000 each, each employer may assume none of that income will be taxed. When you file your tax return, however, your income is combined, and that can lead to an unexpected tax bill.
Understanding that early can help students adjust their withholding and avoid surprises.
Student loans, scholarships and education credits
Q: How early should students start thinking about tax planning?
Davenport: Earlier than most people think. There are a lot of tax benefits related to education that people simply don’t know about.
For example, most students receive a Form 1098-T from their university each year. That form is used to determine eligibility for education tax credits, which can be worth up to $2,500 in some cases.
Often those credits go to parents because the student is claimed as a dependent. But understanding how those credits work can help families maximize their benefits.
There are also situations where reporting certain scholarship income can allow a parent to claim an education credit without the student paying any tax, especially if the student’s total income is still below the standard deduction.
According to Davenport, many people miss opportunities like these simply because they do not know the provisions exist.
“I like being able to save people money,” he said. “But a lot of people don’t know these benefits are there, so they end up leaving money on the table.”
Why tax literacy matters for business students
Q: Why is tax literacy a competitive advantage for business students?
Davenport: At the most basic level, it helps you keep more of the money you earn.
When I taught introductory tax classes, my goal was always to help taxpayers pay as little tax as they are legally obligated to pay, not a penny more.
Understanding taxes also helps students understand compensation. Benefits like retirement contributions, tax credits and deductions can make a big difference in someone’s overall financial situation.
Taxes can seem confusing because the rules change frequently and the terminology is very specific. But learning the basics can help students make better financial decisions throughout their careers.
Resources students can use
Q: What tools or resources should students use each year to stay informed?
Davenport: The Internal Revenue Service website is actually a great resource. It has detailed publications explaining different tax topics in plain language.
Students can also explore training materials from the Volunteer Income Tax Assistance (VITA) program, a national initiative that provides free tax preparation services for low-income taxpayers.
At UTC, students in the VITA program gain hands-on experience helping members of the community prepare tax returns. Last year alone, UTC students completed more than 1,500 returns and helped bring approximately $2 million in refunds back to local taxpayers.
“It’s a very collaborative experience,” Davenport said. “Students are learning valuable skills, while also helping the community.”
For most people, Davenport also recommends using tax software to file returns. Modern software programs automatically apply many tax rules and credits based on the information users provide.
One final piece of advice
Q: If students take only one action after reading this, what should it be?
Davenport: Knowledge is key.
Taxes are complicated, and it’s impossible to keep up with every rule. But learning where to find reliable information whether through IRS resources, tax professionals or university faculty, it can make a big difference.
“There may be some obscure tax provision that applies to you,” Davenport said. “With a little investigation, you might find ways to reduce the tax you owe.”
For students entering the workforce, understanding the basics of taxes is more than just a financial skill. It is a career advantage that can help them make smarter decisions and keep more of their paycheck.
Conclusion
College students may not think much about taxes yet, but understanding how the system works can make a real difference as they enter the workforce. From knowing how withholdings affect a paycheck to recognizing credits and deductions that reduce tax liability, even a basic level of tax literacy can help students avoid costly surprises. Davenport said the most important step is simply staying informed and knowing where to find reliable information. For business students especially, that knowledge is more than just practical, it is a skill that can give them a financial and professional advantage throughout their careers.
Students who want to develop these in-demand skills and gain hands-on experience in tax, auditing and financial reporting can explore our Accounting programs and see how RCOB prepares graduates for successful careers in the accounting profession.
