Grad Student Question regarding FASFA

[parent1333]

We live in NY. Son graduated with undergrad degree in May 2024 from NY college. Moved home for the summer and then moved to CO for grad school where he is working part-time on campus. When he applied for FASFA, it automatically marked him as a non-dependent. Does that mean we can no longer claim him as a dependent? He is 22 years old. Would he need to file non-resident taxes for CO since he is working on campus? He does not plan on moving back anytime soon as he will continue to work in CO over the summer. Graduates in 2026. 

[DavidD66 · Accepted solution]

From a tax perspective, you can still claim your son if you provided more than 50% of his support during the year. Even if you are considered a "non-dependent" on your FAFSA, your parents can still claim you on their tax return.  FAFSA dependency status has no bearing on whether you can be claimed as a dependent on their taxes.  There might be an advantage to him not being claimed as a dependent.  As a student, he may be eligible for Education Tax Credits if he cannot be claimed as a dependent by someone else.  Credits that you might not be eligible for due to income limitations.  

He will need to file a Colorado non-resident tax return, and a New York tax return.  He may want to look in to taking action to become a Colorado resident.  

[Hal_Al · Accepted solution]

Q. Does that mean we can no longer claim him as a dependent?

A. No. The IRS does not go by FASFA rules.

There are two types of dependents, "Qualifying Children"(QC) and Other ("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 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

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 himself.

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.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

He is still considered a NY  resident as long as he is your dependent (and probably even if he isn't your dependent). So he files both a CO nonresident return and a NY resident return.  NY will give him a credit for CO tax paid. 

Getting a BS/BA earlier in 2024 means that his 2024 graduate education costs still qualifies for the more generous American Opportunity Credit (AOC) (assuming you/he haven't already claimed it the maximum 4 times).  Whether you/he claims the AOC or the Lifetime Leaning Credit (LLC), it's usually best if the parent claims it (depending on the amount of income you each have).