dependent or not,, which is best

[thinnests]

My 22 year old moved home in March of 2020 due to COVID after filing as independent in 2019. Is it better for HER  if I file her as a dependent or independent as she is applying for FAFSA to get her Masters degree? I do provide over half of her support but she does work.

[DavidD66]

The question for both of your tax returns is not what is better for her in regards to FAFSA. The question is did she pay for more than half of her support.  Since you stated you pay more than half of her support and the fact that she is 22 and a student, then you can claim her; therefore, she should indicate on her tax return that she can be claimed by someone else, whether or not you claim her.  

As for FAFSA, they have their own rules.

All applicants for federal student aid are considered either “independent” or “dependent.”

If you answer YES to ANY of these questions, then you may be an independent student. You may not be required to provide parental information on your Free Application for Federal Student Aid (FAFSA®) form.

If you answer NO to ALL of these questions, then you may be considered a dependent student and may be required to provide your parents’ financial information when completing the FAFSA form.

1. Will you be 24 or older by Jan. 1 of the school year for which you are applying for financial aid? For example, if you plan to start school in August 2021 for the 2021–22 school year, will you be 24 by Jan. 1, 2021 (i.e., were you born before Jan. 1, 1998)?

2. Are you married or separated but not divorced?

3. Will you be working toward a master’s or doctorate degree (such as M.A., MBA, M.D., J.D., Ph.D., Ed.D., etc.)?

4. Do you have children who receive more than half of their support from you?

5. Do you have dependents (other than children or a spouse) who live with you and receive more than half of their support from you?

6. Are you currently serving on active duty in the U.S. armed forces for purposes other than training?

7. Are you a veteran of the U.S. armed forces?

8. At any time since you turned age 13, were both of your parents deceased, were you in foster care, or were you a ward or dependent of the court?

9. Are you an emancipated minor or are you in a legal guardianship as determined by a court?

10. Are you an unaccompanied youth who is homeless or self-supporting and at risk of being homeless?

*If you don’t answer “yes” to any of the questions above, you’re still considered a dependent student for purposes of applying for federal student aid even if you don’t live with your parents, are not claimed by your parents on their tax forms, or are paying for your own bills and educational expenses.

[Hal_Al]

Usually the family come out best id the child can be the parent's dependent.  But for 2020, the stimulus payment clouds that picture.  If she already got the stimulus in 2020, then it doesn't matter.  Otherwise, she needs to claim herself to get it on her 2020 tax return.

But as others have said, it's not optional. If she CAN be claimed as a dependent, she must so indicate on her tax return.

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, full time student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit. They are interrelated but the rules are different for each.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

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 excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

If those rules aren't met, she cannot be a Qualifying relative dependent unless her income is less than $4300 for the year.