Graduate Student and dependent details

[WesinRoc]

Hi,

My wife and I have a 22-year-old son, in final year of graduate school. This past year is the first time that he did NOT live with us for any months of the year. He has a full-ride scholarship for tuition, and a $ gift from a friend of ours,  which pays covers his rental housing and food costs. The only strict financial support we have given him in past year is the full use of our 2nd vehicle (which my wife and I own/insure).

He has been working, earning about $600 per month while in school, which covers his other expenses, though he made a bit more over summer. Probably he made less than $10K last year.

Can we still claim him as a dependent?  And if we are allowed to and do claim him as our dependent, is there a negative financial impact on him when he files his taxes by not being able to claim himself as an exemption?   Thank you!

[Hal_Al]

Q. Can we still claim him as a dependent? 

A. It depends on the details of " he did NOT live with us for any months of the year".  A student away at school is considered only temporarily away. For tax purposes, he still lives with the parent*. 

So, if he's permanently moved out, he cannot be your Qualifying Child dependent, because he does not meet the residency test.  It also appears that he would not qualify as a Qualifying Relative because you do not meet the support test. 

Q. If we are allowed to and do claim him as our dependent, is there a negative financial impact on him when he files his taxes by not being able to claim himself as an exemption?  

A. No. With the tax law change, effective 2018, most students will get the same refund whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased. However, you only qualify for an education credit or deduction, if you are not a dependent. With $10K of earned income, he still owes not tax, dependent or not. 

*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

See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

[WesinRoc]

Amazingly fast response. Thank you.

A bit more info, and clarifying question:

His Tuition was about $60,000. But he didn't pay a dime of it; it was covered in full by scholarships. 

I estimate that his Lodging, Food, and Clothing, gas/maintenance on our vehicle were about $16,000 total. This was all paid by my son's own money, through his own income and his own gift money received from a family friend.

I estimate the medical expenses and vehicle annual vehicle value + insurance that we provided to be about $6,000.

Originally I thought we could claim him because I was estimating his total expenses as 81K per year based on total of Tuition and Living expenses, which he obviously did not pay 50% of. Clarifying questions:

1. I understand you to be saying that we cannot count the $60,000 tuition (in scholarships) as part of the total support given to him in 2022. Do I understand this correctly?

2. Assuming the estimated expenses I noted above, instead of 81K, my son's annual living expense was $21K, of which he paid $16K (~76%) of support from his own funds. Therefore, we CANNOT claim him as our dependent.  Based on the simple numbers I have provided and assuming they are accurate, do you agree that I understanding this correctly and that we CANNOT claim him as dependent.

Thank you very much!

[Hal_Al]

First, you need to address the first issue: does the student still reside with you.  

The support test is different for each dependent 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.  You do not meet the Qualifying Relative support test, because tuition is part of support.  If he is still considered as living with you, you  do meet the support test, because the student is not providing more than half his own support

[WesinRoc]

Thank you again. I am still confused on this. (I am trying to parse the letter of the law, rather than the spirit of the law, if the letter of the law will allow me to claim him as dependent.) But practically speaking, as I noted in the first post, our son did NOT live with us in 2022 - EXCEPT for a week or so between two different apartment leases. For all of 2022, he kept receiving mail at our house because he knew his 2022 living arrangements were temporary, and coming back to live with us in 2022, though never his preference, was his fallback option in case something didn't work out.  

This obviously isn't as clear cut as his first four years of college when he would come back home in the summer and live the whole summer with us. Summer 2022 he did not come home and he did not return home permanently at any time in 2022.  The fact that he didn't come home permanently in 2022, is that the key factor? And thus I can not claim him?  Being a college student under 24 still receiving some support from us in an of itself doesn't qualify him as a dependent for purposes of my EIC?

His intent now, in 2023, is to take a job after graduation out of state, so he NOW clearly has no plans of returning home. 2022 was a little gray in terms of intentions, because there were too many unknowns during the year. But as I said, in FACT he only lived with us about a week in 2022.

As you can see, I am trying hard to rationalize claiming him!  I realize that you can't give official tax advice, but if you can signal whether or not you think I should give up on it, I would appreciate it. thanks! 🙂

[Hal_Al · Accepted solution]

Q. The fact that he didn't come home permanently in 2022, is that THE KEY factor? And thus I can not claim him? 

A. No. It's "a" factor.  If his primary ("key") reason for being in that town, is to attend school, then he is, most likely, still only temporarily away from home, even though he has a year long lease for off campus housing,  and can still be your qualifying child dependent. "His intent now, in 2023, is to take a job after graduation out of state" (but not in the college town) also indicates that his presence there is temporary (for the purpose of attending school). 

Q. Being a college student under 24 still receiving some support from us in and of itself doesn't qualify him as a dependent for purposes of my EIC?

A. Simple answer: yes, it does. Being a full time college student , under 24, considered residing at his parent's home, and not providing more than half his own support, makes him a QC dependent and THAT qualifies him for EIC. 

I'm of the opinion (signaling) that you should claim him. 

[WesinRoc]

Thanks! you made my day 🙂