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Level 1

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

 
9 Replies
Level 8

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

Yes, if she was under 24 in 2018. 

Living at school is treated as living at home. 

Qualifying Child

1.         The child must be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them.

2.         The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled.

3.         The child must have lived with you for more than half of the year.

4.         The child must not have provided more than half of his or her own support for the year.

5.         The child must not be filing a joint return for the year (unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid).

 

Relatives who don't have to live with you. A person related to you in any of the following ways doesn't have to live with you all year as a member of your household to meet this test.

Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). (A legally adopted child is considered your child.)

Your brother, sister, half brother, half sister, stepbrother, or stepsister.

Your father, mother, grandparent, or other direct ancestor, but not foster parent.

Your stepfather or stepmother.

 A son or daughter of your brother or sister.

A son or daughter of your half brother or half sister.

A brother or sister of your father or mother.

 Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

Any of these relationships that were established by marriage aren't ended by death or divorce.


Level 3

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

Does the amount of that child's gross income affect the answer? In this example she earned $4900, which is higher than the $4050 gross income that I thought was the limit.

Level 11

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

If the dependent is a full-time student under the age of 24 in the tax year, their gross income does NOT affect your ability to claim them as your dependent.  You do not have to worry about the $4150 earning limit for a full-time student until the year they turn 24.

 

WHO CAN I CLAIM AS A DEPENDENT?

You can claim a child, relative, friend, fiance (etc.) as a dependent on your 2018 taxes as long as they meet the following requirements:

Qualifying child

• They are related to you.

• They aren't claimed as a dependent by someone else.

• They are a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.

• They aren’t filing a joint return with their spouse.

• They are under the age of 19 (or 24 for full-time students).

No age limit for permanently and totally disabled children.

• They live with you for more than half the year (exceptions apply).

Qualifying relative

• They don't have to be related to you (despite the name).

• They aren't claimed as a dependent by someone else.

• They are a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.

• They aren’t filing a joint return with their spouse.

They lived with you the entire year.

• They made less than $4,150 in 2018

• You provided more than half of their financial support. More info

Level 11

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

The limit for 2018 is $4150. But the limit does not apply to "Qualifying Child" dependents.

 

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, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit (if under 17).

 

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

  1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
  2. He did not provide more than 1/2 his own support. Scholarships are considered third party support and not as support provided by the student.
  3. He lived with the parent (including temporary absences such as away at school) for more than half the year

 

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

 

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12.000), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.  TT will check that box on form 1040.

Level 3

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

This is very helpful and particularly interesting that money he puts into savings does not count as support he spent on himself.

 

In my case it is my child, he is 22,  he will be in graduate school full-time for maybe six years. School will give him a stipend in addition to a tuition waiver. The stipend in the first year will be less than half of his living expenses but the second year should be somewhat more than half. But in both cases I anticipate he will first pay the living expenses (his first crack at paying bills like an adult), then I will get reimbursement from the 529 for Qualified Education Expenses  (I'm the account owner and he is the beneficiary) then transfer those dollars to his account. So at the end of the year "qualified" expenses have been paid by me and his savings account will be the amount of the stipend (minus fun stuff).

Level 11

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

Here's some more info on 529 plans:

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:
  $20,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship

   -$10,000 used to claim the Education  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.

Level 3

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

I (the parent) took the American Opportunity Tax Credit for the four years of college, and was pretty careful not to double-dip. So if dependent student's tuition was about $15,000 per year, I reimbursed myself only $11,000 from the 529. Since four years is all you get for AOTC, I am now looking into the Lifetime Learning Credit. I don't think that the LLC will be of much use to us since tuition is going to be covered by the school. Here's about what I think it will look like:

 

20,000    tuition

-20,000    "100% tuition coverage, excludes program fees and mandatory registration fees" [they don't actually call it a scholarship]

13,000     room and board

 

So I believe those program fees and mandatory registration fees could come under the LLC but that's it. All of the room and board would have to come from the 529. For this 529 the parent is the "owner" and the dependent student is the "beneficiary." Does it matter to the IRS whether the 529 distributions get sent to the student or the parent? For instance, I put money in student's checking so he can pay the rent. It is most convenient for me to add up all the rent payments at the end of the year and have the 529 distribute a lump sum to me. Anything wrong with that?

Level 11

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

If the 529 distribution is totally used for qualified expenses (such as room & board), it does not matter whether the distribution goes to the student or parent, as none of it is taxable.  There might be a slightly less chance of an audit, if it goes to the student and his lower tax bracket.

 

If some of the distribution is taxable (see example above), the student is usually in a lower tax bracket, unless he is is subject to the 'kiddie tax".  But, the only way to be sure, is prepare returns both ways and compare.

 

Level 3

Daughter in college in 2018, worked and earned $4900/parents paid over half her living and school expenses. Can she be claimed as a dependent?

Let me just say thank you again. I'm quite impressed with the helpfulness and completeness of these answers.