can college student file indepently to claim education credit

[wangli7576]

We couldn't claim any education credit if we include our son as our dependent.  He is a sophomore in College. My son makes some money but less than 50% of his tuition. We paid his tuition. Can he file independently to claim the education credit? If answered his earned income is less than 50% of his expense, do the parents have to provide their income in his tax return? Will that affect him getting education credit? 

[KrisD15 · Accepted solution]

A student is either a dependent or isn't. If the student did not pay for more than half their support, they cannot file as a non-dependent.

If the dependent student has a tax liability, and would otherwise meet the requirements of the American Opportunity Tax Credit, it is possible for the student to claim the NON-REFUNDABLE portion of that credit. 

This is accomplished by no one claiming the student as their dependent. 

The dependent student selects "Yes, someone else can claim me." BUT "No, someone else will NOT claim me"

The student then enters Form 1098-T, other expenses and other financial aid (which does NOT include loans or money paiud by you). 

This may or may not be beneficial to the student depending on their tax situation. 

If the credit is used to lower the student's tax, it would count as one of the four times the credit can be used relating to that student. 

Pub 970 

[fanfare]

why can't you list him as dependent?

did he turn age 24 in 2023 ?

@wangli7576 

[wangli7576]

there is no benefit to claim college student as dependent as parents income too high to get education credit 

[MarilynG1 · Accepted solution]

If the parents can't qualify for an Education Credit, the student may qualify by entering  the 1098-T on their return. 

Students: If you're not being claimed as a dependent, enter the 1098-T on your return regardless of who paid the tuition, unless it was your employer. 

Parents' income is not reported on student's return.

If the student paid Federal Tax on his earnings,  he may want to file a return in any case.

Here's more info on How to Enter Form 1098-T. 

@wangli7576

[wangli7576]

Thanks Marilyn G1, however, if I chose the answer" student paid less than 50% of living expense" it pops up a form 8615-Tax for certain children who have unearned income, it asks for parents social and income, so the tax rate changes considering parents income. I wish "Parents' income is not reported on student's return" Any other suggestions? 

[wangli7576]

@MarilynG1 @KrisD15 

[KrisD15]

There is the option for the dependent student to claim the non-refundable portion of the credit, but as stated, it may not benefit you nor the student. 

You didn't tell us the numbers on the 1098-T, so it is not clear if there is an education credit available.

Scholarship income is NOT unearned income, so if the student is subject to the Kiddie Tax, entering the 1098-T on the students return should not matter for that tax. 

[wangli7576]

Thanks @KrisD15 , following your suggestion to file our son as  dependent as he has tax liability. He makes money <50% of his expense, his 1098-T has tuition about 65K, not including additional room + board cost which is about 20K. We won't claim him in our tax return as it makes no difference that we don't qualify to any child credit. After selecting "Yes, someone else can claim me." BUT "No, someone else will NOT claim me",  then enters Form 1098-T, other expenses and no financial aid. Turbotax then pops up a form 8615 Tax for certain children who have unearned income, we have to enter parents income, SSN etc. Then it calculates his unearned income -not sure how it calculates? Then his tax amount increased drastically. Am I doing right? 

[KrisD15]

Form 8615 is generated for dependents with "unearned income". Does the student have investment income?

I am confused since if the 1098-T generates a credit, there should be no additional income relating to the 1098-T, so there should not be any unearned income relating to the 1098-T.

What is in Box 1 and Box 5 on the 1098-T?

[wangli7576]

@KrisD15 You are correct. Now I understand how this number is calculated. My son has investment income, plus summer intern scholarship issued in 1099-misc form by the school to pay for summer research project -housing and food. Those numbers add up equal to child unearned income in form 8615. There is only number in Box 1 about $65k, no number in box 5 in form 1098T.  In form 8615, I have to enter parents income in Part II, it calculates tentative tax rate based on the parents' income, this tax then added to the child tax in Part III which drives the total tax significantly higher. Someone mentioned that parents income doesn't need to be included in the child tax if select "parents will not claim child as dependent" although child "can" be claimed as dependent. Does it sound right to you? 

[KrisD15 · Accepted solution]

If under 24 and single, it doesn't matter if the parents don't claim the student.

I think in this situation, having the student claim the non-refundable portion of the credit will be beneficial since the student would be subject to the Kiddie Tax regardless. 

"To be considered a student, a child must attend school full-time during at least five months of the year. It doesn't matter whether the child is claimed as a dependent on the parent's return. However, the tax does not apply to a child under 24 who is married and files a joint tax return."

Source 

[wangli7576]

Thanks @KrisD15 You are so right! I finally figured out why my son has to pay extra tax due to Kiddie tax. It is unfortunate that his summer scholarship is a taxable income under parents' tax rate :(  Is that common for school to issue 1099-misc for that type of summer scholarship? Do student usually have to pay tax on that? The scholarship support my son's summer research in school's lab,  the amount is usually sufficient to cover housing and food. It doesn't pay for any tuition, no course credit earned. Are there any deduction on that type of scholarship? 

[MarilynG1]

If the scholarship was used to pay Education Expenses, then enter it in the Education section and it will not be taxed as other income, as long as it doesn't exceed the amount of education expenses claimed.

Edit the Student, then Edit the School, and enter the 65K in Box 1 for Tuition.

For Box 5, enter the amount of scholarship reported on the 1099-Misc (even though it's not on the 1098-T).

You'll get a screen asking if the amount in Box 5 was also reported as income on a 1099-Misc or W-2.

@wangli7576 

[wangli7576]

@MarilynG1 Thank you so much! Now my son is able to claim the American education credit and pay no tax on the summer scholarship! and thanks @KrisD15, Both of you are awesome experts!