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Level 2

5th year part time student lives at home, independent or dependant?

Son turned 23 as of the end of December 2020, he was in school more than half time (but not full time) all of 2020 and lives at home since we live less than 15 miles from both his work and college.

 

For his first 4 years of school, we claimed him as a dependent as it was clear we were still providing over half his support.  However as he's worked/earned more we have shifted what he is responsible for and this year I am uncertain. He has never used/received any grants/loans/scholarships so financial aid is not part of the equation. 

 

In 2020 we provided:  lodging (and utilities that go with it), health insurance, and an occasional meal (probably no more than 3 a week).  Normally lodging and health insurance would be a big portion of his expense but we are a family of 8 with low costs and when I divide it out per person, his portion is in the $200-250 range per month. 

 

He provided:  all clothing, over 80% of his food, all car expenses (registration fees, insurance, repairs - and there was some big ones last year, gas), all cell phone expenses.  He made just over $40k last year so from that number alone there is no reason he can't support himself. 

 

He also was responsible for 100% of his college expenses (which were about $7,500 last year). He did pay tuition from his 529 plan (he was the recipient on the checks). He could easily have paid the tuition out of pocket but is trying to use up the 529 money rather than trying to figure out how to access it when no longer a student. This is the first year he took money out of the 529 so was not sure  how to count that when determining how much of his own support he is providing.

 

So does 529 money count as his support of himself or do I have to count it as my supporting him?  Obviously whoever is deemed providing the 529 money (I didn't fund it either, it was a gift from a now deceased relative when he was a young child), will have the upper hand in providing the most support. 

 

Intellectually, I have a hard time justifying him as a dependent with his income and was planning on declaring him independent but was worried that since he was 23, still a student and living at home that I may unknowingly be triggering an IRS audit or something if I suddenly declare him independent while he is still in school and they don't agree with me. 

 

6 Replies
Employee Tax Expert

5th year part time student lives at home, independent or dependant?

That is not an uncommon or audit-triggering event.  If he provided over half of his support, and it sounds like he did, he should be claiming himself as a dependent.   If he doesn't provide half of his support, you can claim him, but you are not required to.  

 

Whether it's a child, a friend or a relative you support, the term 'support' is generally defined as what you spend on a person to provide the basic necessities of life. While the specifics may be debatable in certain circles, here's what the IRS considers typical for the purposes of a tax return.

 

Support includes:

- Food

- Lodging (even if your mortgage is paid off)

- Clothing

- Education (including the GI bill)

- Medical and dental care (including insurance and supplementary Medicare premiums)

- Recreation

- Transportation and similar necessities

 

Support does not include:

- Life insurance premiums

- Funeral expenses

- Federal, state, or local income taxes or Social Security and Medicare taxes paid on a person's own income

- Scholarship grants

- Income made by a disabled person in a sheltered workshop

 

Generally, if this person provides more than half of his or her own support, you cannot claim him or her as a dependent.

 

Get more help figuring out how to determine support here.    There is a worksheet on page 15 of Pub 501.

 

For your son - How do I answer the "Did you support yourself in 2020?" question? Did I support myself?    

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Level 15

5th year part time student lives at home, independent or dependant?

Support is not the governing  issue.  Don't waste time & effort trying to figure it out.  His $40,000 of income and the fact that he is not a full time student means he cannot be your dependent.

 

There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

 

A child over age 18 must be a fulltime student to qualify as a QC.

 

A person can still be a Qualifying relative dependent, if not a Qualifying Child, if he meets the 6 tests for claiming a dependent:

  1. Closely Related OR live with the taxpayer ALL year
  2. His/her gross taxable income for the year must be less than $4300 .
  3. The taxpayer must have provided more than 1/2 his support

In either case:

  1. He must be a US citizen or resident of the US, Canada or Mexico
  2. He must not file a joint return with his spouse or be claiming a dependent of his own
  3. He must not be the qualifying child of another taxpayer

 

Level 2

5th year part time student lives at home, independent or dependant?

I totally forgot about the full time student criteria.  Yeah he didn't meet that because he had 10 credits one semester and 7 the other.  Thank you for making that part simple (now on to figure out how to deal with mismatching 1098 t and 1099q forms).

Level 15

5th year part time student lives at home, independent or dependant?

Provide the following info for more specific help  with mismatching 1098 t and 1099q forms):

  • Box 1 of the 1098-T
  • box 5 of the 1098-T
  • Does box 5 include any of the prepaid plan payments (it should not)
  • Box 1 of the 1099-Q
  • Box 2 of the 1098-Q
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
  • Room & board paid. If you live off campus, what is school's R&B charge
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers

_______________________________________________________________________________________

Qualified Tuition Plans  (QTP 529 Plans) Distributions

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit,  that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

 

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q. 
Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (usually on the student’s return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)

 

**Alternatively; you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip!  When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

Level 2

5th year part time student lives at home, independent or dependant?

College billed (and DS paid) 7632.47.  Of that 6585.63 was labeled as tuition and 1063.84 was labeled as fees.  Not entirely sure what fees goes to as they don't break it down any further and the fees are required to attend.

Plus he had 27.42 for a required book that he bought elsewhere.  No room and board (he lives at home), no other expenses.

 

DS's name and SS are on the  1099 q 

Box 1 $7629.83 (I forgot to include the book and I rounded down the requested amount a couple of dollars one semester to an even number).  

Box 2 1827.70

 

His 1098T from the college says $7144.78 in Box 1.  All other boxes are blank (he doesn't receive financial aid) except the one checked at least half time student.

 

Questions

The 1098 T is less than what he paid the college.  I know I can go to the "hidden" box and enter the amount we actually paid but "should" he.  Are some of the fees he had to pay considered unqualified expenses?  Is that why the college lists a lower amount?  Surely they know better than I what those fees are used for and if they are a qualified expense or not but at the same time we don't have any choice about paying them.

 

1099 Q amount was based on what he paid (and we thought were all qualified expenses since it was required to be paid to school).  However it is higher than what the school lists. I know I can skip entering it "IF" he has matching qualifying expenses but does he? Currently if I enter both forms exactly as given to him, he has an overdraw on the 1099 and gets hit with the penalty plus all the amount of Box 2 is showing as income.  Leaving it off solves both issues but because of question above I'm not sure if I'm legally entitled to not report the 1099 Q

 

Last question,  We have claimed the 4 years of AOC when he was a dependent.  Even though he is now independent, I know he is not eligible for the AOC however, is he eligible for the lifetime learning credit?  I haven't parsed out how that works with paying with the 529 and my brain is starting to overload on the technicalities of all this.

Level 2

5th year part time student lives at home, independent or dependant?

College billed (and DS paid) 7632.47.  Of that 6585.63 was labeled as tuition and 1063.84 was labeled as fees.  Not entirely sure what fees goes to as they don't break it down any further and the fees are required to attend.

Plus he had 27.42 for a required book that he bought elsewhere.  No room and board (he lives at home), no other expenses.

 

DS's name and SS are on the  1099 q 

Box 1 $7629.83 (I forgot to include the book and I rounded down the requested amount a couple of dollars one semester to an even number).  

Box 2 1827.70

 

His 1098T from the college says $7144.78 in Box 1.  All other boxes are blank (he doesn't receive financial aid) except the one checked at least half time student.

 

Questions

The 1098 T is less than what he paid the college.  I know I can go to the "hidden" box and enter the amount we actually paid but "should" he.  Are some of the fees he had to pay considered unqualified expenses?  Is that why the college lists a lower amount?  Surely they know better than I what those fees are used for and if they are a qualified expense or not but at the same time we don't have any choice about paying them.

 

1099 Q amount was based on what he paid (and we thought were all qualified expenses since it was required to be paid to school).  However it is higher than what the school lists. I know I can skip entering it "IF" he has matching qualifying expenses but does he? Currently if I enter both forms exactly as given to him, he has an overdraw on the 1099 and gets hit with the penalty plus all the amount of Box 2 is showing as income.  Leaving it off solves both issues but because of question above I'm not sure if I'm legally entitled to not report the 1099 Q

 

Last question,  We have claimed the 4 years of AOC when he was a dependent.  Even though he is now independent, I know he is not eligible for the AOC however, is he eligible for the lifetime learning credit?  I haven't parsed out how that works with paying with the 529 and my brain is starting to overload on the technicalities of all this.

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