AOTC- do I have to check 'someone can claim as dependent' if they dont?

[avjunior]

The TT interview is clear that if a student can be claimed by parents as a dependent, *even if the parents don't claim the student on the parents return*, that the student must check the box that they can be claimed as a dependent. Also reference this:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-return/indicate-claimed-dependent-so...

However I can't find anything on the IRS site that is this explicit.  The 1040 instructions for checking this box just say "if you can be claimed as a dependent on someone else's return".  I have a feeling students don't check it if their parents don't claim them.  "If you can be claimed" is pretty close to "have you been claimed".

If a parent doesn't meet the AGI requirements for claiming the AOTC then if the student claims it it can be a big savings for the student while the parent only loses $500.  However if the student checks the box that they can be claimed on the parent's return they cannot claim the AOTC.

What am I asking?  Not really sure but I don't want to miss saving money if it's not necessary.

[NCperson]

@avjunior read the word "CAN"  in the question.  

the parent always has the option to claim or not claim their children.  

But the question asked of the dependent is CAN someone else claim you; not whether the parent actually claimed you.  

it's is quite clear...... CAN you be claimed and WERE you claimed are not even close to the same thing! 

<<If a parent doesn't meet the AGI requirements for claiming the AOTC then if the student claims it it can be a big savings for the student while the parent only loses $500.  However if the student checks the box that they can be claimed on the parent's return they cannot claim the AOTC.>>

bold: that is not true!!!

that is a different can of worms.  if your parent claimed you, you can not claim AOTC! so it is necessary to know what your parents actually did!

If they did not claim you, you can claim AOTC, but it is rather hard for most students. (and that doesn't change how you answer the CAN question, which is totally separate from AOTC)

There are two parts of AOTC: refundable (worth up to $1000) and non-refundable (worth up to $1500).

you are not eligible for the refundable credit if ALL THREE of the following are true:

1) you are under 24 years old and provide less than 50% of your support

2) one of your parents are alive

3) your filing status is other than MFJ

you are eligible for the non-refundable portion (and that can be the whole $2500 if you are not eligible for the refundable portion), but it requires an income of at least $14,600 in 2024 to be eligible for the first dollar of the credit.  The credit will reduce your tax liability (line 22) of form 1040 to as low as zero.  But if your income is less than $14,600, it's not worth anything to do.

does that help? 

[marctu]

I love that you write I am not sure what the question is.  For whatever it is worth the link that you placed in what you wrote does not open.  This would be a better link:  Rules for Claiming Dependents on Taxes Here you can find the general rule that you cite:  "Generally, the IRS requires that the child is under the age of 19 (or under 24 if a full-time student), lives with you for more than half the year, and does not provide more than half of their own financial support."  

So with the general rule in place, the question then becomes what a child under 24 and a full-time student could receive with the American Opportunity Tax Credit ("AOTC") if they took the AOTC.  The instructions for  Instructions for Form 8863  on page six state as follows:

If you were under age 24 at the end of 2023 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, you can claim your allowed credit, figured in Part II, only as a nonrefundable credit to reduce your tax.

So a full-time student under the age 24 would need to have tax liability, which would be income exceeding $14,600 in tax year 2024 to have any nonrefundable credit.

So while you are unable to find specifically on the IRS website, I can assure you that even if one of the limited circumstances were met, a student would have to make over approximately $19,600 to exceed the $500 other dependent credit.   

I hope I was able to answer the non-question with this @avjunior 

Be well and safe!

Marc T.

Turbo Tax Expert

27 Years of Experience Helping Clients

[avjunior]

Thanks so much for these quick replies!  This community is why I continue to use TT.

Getting to specifics on my daughter's return.  Assume I've entered all the info for the AOTC including the 1098-T.  I go back to the interview topic on her return for 'You and Your Family' and edit it.  The cases are:

1.) I don't check "Another taxpayer can claim ... on their tax return".  Then the federal refund goes way up and the state refund as well.  The AOTC is applied.

2.) I check "Another taxpayer can claim ... on their tax return".  Now I am presented with two more questions.  I check "Another taxpayer will not claim". The larger federal refund stays the same but the state refund goes down and the AOTC is not a factor as far as the state.

So in this case checking "Another taxpayer can claim" (along with the other taxpayer not claiming) doesn't affect the federal amount but does affect the state (MD).

It seems I should check "Another taxpayer can claim" if that's true.  It's nice it doesn't affect the federal if the parents don't claim.  But not nice it does affect the state.

[NCperson]

@avjunior 

question: why are you not claiming your daughter? it's worth $500 (unless your income is too high).....

if you are not claiming her (because your income exceeded $180k filing joint), so that you thought she would be eligible for AOTC....that is why the IRS has the THREE RULE test I mentioned above - to prevent high income households from attempting to circumvent the income ceiling ($180k) by not claiming the child and letting them apply for the credit.  🙂 

not sure why MD income tax would be any different.... you might want to print out the tax return set up both ways and do a side x side comparison.  

[avjunior]

Thank you this makes a lot of sense IRS-wise.  I am above the income limit and can't claim AOTC on my joint return.  Yes I lose the $500 but it's more than made up by what my daughter would gain through the AOTC.

But why would TT give her the credit when I checked the box for not claiming my daughter?  TT interview doesn't seem to be asking questions about or applying the three rule test.

[NCperson]

@avjunior - how old is your daughter as of 12/31/23? (I assume you are working on the 2023 tax return) 

I'll assume she is filing SINGLE, and since you state you are her father, we know that at least one parent is alive 🙂 

[avjunior]

As of 12/31/23 my daughter was 20.  Both parents are alive.  She receives more than 50% of her support from us.  Yes this is her 2023 return, filing single.

Thanks again for your help!

[avjunior]

Summary.  As NCperson noted I was wrong and my daughter can claim an education credit if she says to the TT interview that someone can claim her as a deduction and no one claims her.  She was 20 at the end of 2023, doesn't pay for more than half her expenses, is full time, both parents are alive and required to file.

On my return as the parent if I don't claim her I lose $500 on Federal and the MD state does not change. (The TT interview is great in that if you change something it immediately shows the new tax).

On my daughter's return if she says to the TT interview she can be claimed and the parent doesn't claim her she gets around $700 non-refundable education credit.  For the family a net gain of $200.

But for MD it's not the same as federal.  MD has six filing status options.  Option 6 is "dependent taxpayer".  Her other choice would be option 1 "Single".  The TT interview causes her to be put under option 6 and she loses the self-exemption which increases her MD tax significantly.

What's hard for me to understand is that for the education credit the federal makes a distinction between whether one can be claimed and whether they are claimed.  MD does not with regard to the self exemption. I wonder why from MD's point of view she can't get the self-exemption if I don't claim her?

[NCperson]

@avjunior first, since your child was eligible for the non-refundable credit, that means her income would be in the $20k range and Box 1 exceeded Box 5 of form 1098-T by at least $7,000.   if so, that part is accurate! Line 22 is probably zero which would make sense.

as to why MD aspect, you may want to ask your legislative representatives. It's the way MD passed the tax laws in your state.