The tax year that you graduate medical school (I.e 2018), as a newly minted intern there are a variety of tax benefits one should be aware of. Most of these stem from the fact that you will have only earned income for half a tax year (July-December) and therefore will be placed solely in a lower tax bracket than the subsequent years of residency.
- Lifetime Learning Credit- this $2000 credit is the most important tax benefit you can claim as an intern. Assuming you paid tuition during your last year of medical school, they will provide you with a form 1098-T which you can use to fill out IRS form 8863 which can be submitted along with your standard form 1040. If you are like most interns and your only substantial income is from your residency pay then this credit will enable you to reduce your tax burden to effectively $0. Note: Some schools will bill all of their academic year expenses at once and therefore you will be utilizing the 1098T of the year prior to the you graduate. For example if your 4th year of medical school was 2017-2018 you would utilize the 2017 1098T.
- Student Loan Interest Deduction- this $2500 deduction can reduce your taxable income if you made one student loan payment (even first year income driven repayment plans count) during the tax year. You’re eligible to either either the full $2500 or the amount of interest you paid, whichever is greater. Read more here.
These two are the two main deductions and credits that can help the vast majority of interns save some money on their taxes during their first year of employment. Please feel free to ask questions or leave comments below.