Since student loans are deferred at least until Dec 31, 2020 does this mean that next year's tax return could likely be less because no student loan interest for federal loans have been charged? Each year I think a large portion of my federal return is owed to my large student loans so wondering and a bit worried that that check won't be an option next year?
Your tax return is the form you send to the government that shows your income and calculates your tax. The money the government sends back to you is your refund.
The tax return that you file in 2021 is your 2020 tax return, reporting the income that you earned in 2020. The refund that you receive in 2021, based on your 2020 tax return, is your 2020 tax refund.
You are correct in thinking that having paid less interest, or no interest, on your student loan in 2020 will reduce your 2020 tax refund. Without being able to see your tax return, we can't tell how much of a difference it will make. It could be a little complicated to figure out because eliminating the student loan interest deduction could affect other things.
You can get a rough idea by looking at your 2019 tax return. The student loan interest deduction is on Schedule 1 line 20. If you lose that deduction entirely, it will increase your taxable income by that amount. The effect on your refund depends on what tax bracket you are in. For example, if you are in the 22% tax bracket, losing the entire student loan interest deduction will reduce your refund by 22% of the deduction amount. It also increases your Adjusted Gross Income (AGI), so it could affect other deductions or credits that depend on AGI.
Thank you so much for the thorough response. Really helpful!
Of course, you can keep making payments even though you are eligible for a deferral. Deferring the payments just stretches out the length of your repayment.
The maximum student loan interest deduction is $2500, and it phases out at higher income, so you are probably in the 15% tax bracket to use the deduction. That means that your tax maximum savings attributed to the student loan interest deduction is around $375.