Dependents and Child- Tax/Education Credit

[scjohn75]

I have 3 kids in college, twins that are 20 and an 18 year-old.  

It seems they would be better served if I do NOT claim them as dependents and they each receive a $1,000 Education Credit. Otherwise, I only qualify for a $500 Dependent child tax credit.

$1,000 credit to each ($3,000 total) versus just $500 for me seems like a no-brainer

What would you recommend?

[Hal_Al]

The rules don't allow that.

A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit.  If the parents don't qualify, due to the income limit, then the family is just out of luck.*

You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.

Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863

*Technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out.  A student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he/she supports himself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support.  It is usually best if the parent claims that credit.  

If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit.  The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500 (AOTC shifts to all non refundable)

[MinhT1]

If your son/daughter is under 19 (or under 24 and a full time student) and he does not provide more than half of his own support for the tax year, you can claim him as a dependent. 

You do have the choice of not claiming him. If you do not claim him, then you lose the Other dependent credit of $500 and you cannot claim his education credit from his form 1098-T.

As for your son, on his own tax return, he is asked the question whether he paid more than half of his living expenses with earned income. If the answer is No, then he must say that he can claimed as a dependent by someone else. 

If someone can claim him as a dependent but does not actually claim him, he can claim the non-refundable part of the American Opportunity credit, but not the refundable part. If he doesn't have any tax liability, then there is no tax benefit for him.