By now, most students have received their W-2 forms and are gearing up for the annual headache of filing tax returns. Admittedly, this is no great cause for celebration. But before sending in returns this year, it is important to know about recent developments at the Minnesota Legislature and in Congress that make college students eligible for extra deductions that are not listed on the paper forms.

After months of hand-wringing, Congress renewed a $40 billion tax and trade bill – including a deduction for higher education costs – that was set to expire right before closing the session this last December. Better late than never, but, unfortunately, the Internal Revenue Service had already printed and mailed out the 1040 forms we’ll be filling out in the coming weeks sans instructions on the changes.

This means that those eligible for the break – students and their parents or guardians if they contribute to higher education expenses – will need to check the updated online forms and procedures on the IRS Web site. Consider this extra hoop that students or their parents must jump through as the final gift from the 109th Congress to the American public.

Students or their parents will have to follow the same procedure for state tax returns. Both chambers of the state legislature have unanimously moved to pass a law that will bring Minnesota into conformity with these new federal tax specifications. Gov. Tim Pawlenty has said he will sign this into law, so those eligible will be able to take advantage of this for our 2006 returns.

All told, analysts say this will end up saving about $165 for the average taxpayer. The break could be higher or lower than that estimate depending on how much we spend individually on tuition and related costs.

Students who are planning to file a paper return should make sure to visit the Web sites for both the IRS and the Minnesota Department of Revenue. It could end up saving enough to pay an electricity bill or two.