How does a FT student determine her self support status? Lives on campus and 99% of her expenses are college payments (tuition/room/board). Is it based on who pays it?

[alecfuhrman]

She worked during the year and paid for about 53% of her tuition from her earned income. The rest was paid from 529 plan that’s managed by her parents.

[xmasbaby0]

https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/financially-support-another-per...

[xmasbaby0]

WHO CAN I CLAIM AS A DEPENDENT?

You can claim a child, relative, friend, or fiancé (etc.) as a dependent on your 2024 taxes as long as they meet the following requirements:

Qualifying child

• They're related to you.
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They're under the age of 19 (or 24 for full-time students).
• No age limit for permanently and totally disabled children.
• They lived with you for more than half the year (exceptions apply).
• They didn't provide more than half of their own support for the year.

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're 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 (exceptions apply).
• They made less than $5050   
• You provided more than half of their financial support.

When you add someone as a dependent, we'll ask a series of questions to make sure you can claim them. There may be other tax benefits you can get when you claim a dependent.

[Hal_Al]

Even though the student may be "away at school", she is, normally, considered as still living with her parents, for tax purposes. As such, the cost of that home is included in the support test.  

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. Other support expenses include clothing entertainment and transportation. 

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

[alecfuhrman]

What role does the college payments for tuition, room and board play in this? Especially in the context of the house where her parents live and which is considered her permanent residence for tax purposes ? 

[Hal_Al]

The questions you are asking usually indicates that you are trying to let your daughter claim the tuition credit. It does not matter whether the student  or the parent actually pays for the college expenses. What matters is whether the student qualifies as the parent's dependent.  The tuition tax credit goes with the dependency.  If the student qualifies as a dependent, the parent claims the tuition credit, even if the student paid her own tuition. 

 If the student is not a dependent, she can claim the tuition credit on her own tax return.  If she is under 24, there is an earned income requirement for the refundable credit.  

 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 she 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. 

You cannot claim the (up to) $1000 refundable 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#en_US_2024_publink53002gd0e674

https://www.irs.gov/instructions/i8863

The law was written this way to specifically prevent shifting the AOTC to the student because the parent is  not eligible).

So, the student paying more than 50% of her college expenses, with earned income, is not enough. She must pay more than half her total support, including home expenses, with earned income. 

If the student actually has a tax liability, there is a provision to allow her 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 she can be claimed as a dependent, on her return. This is worth up to $2500 (AOTC shifts to all non refundable)

[alecfuhrman]

Thank you very much for your reply, this was very helpful. I just want to clarify a few things to make sure I understand everything. Yes, you’re correct, I’m trying to figure out if she qualifies for AOTC and her dependency status. So just to clarify all the details - she’s under 24, FT student, and had earned income in 2024. She lives on campus and during the summer she worked at a sleep-away camp so she spent at most 2-3 weeks at home during 2024.  She paid for over 50% of her college expenses (tuition/room and board) in 2024 (spring and fall semesters, some of these funds went towards spring ‘25 semester but they were paid in 2024), the rest was paid from the 529 plan. Her parents paid for her health insurance, their house is paid off, there’s no mortgage. She also had some other non-significant expenses (food/clothing) for which she paid herself. She obviously paid taxes in 2024 and will file her tax return. 

If I understand the rules correctly, based on the above she probably CAN be claimed as a dependent by her parents (mostly because of the “house” which is her permanent residence even though she barely lived there. Otherwise, even with health insurance paid for by parents, the amount she paid with her earned income would still be higher than 1/2 of her cost of living which is college expenses+health insurance+additional expenses). So then she should indicate on her return that she can be claimed as a dependent but her parents should not actually do so on their return, correct ?  
And lastly, what about the question regarding her self-support status on her return ?

Thanks again !

[Hal_Al]

Q. What about the question regarding her self-support status on her return?

A. There is no such question on the actual tax forms. Form 1040 only asks if somebody can claim her as a dependent. But that question does occur in the TurboTax (TT) interview.  The answer is no, she does not provide more than half her own support. 

Q.  So then she should indicate on her return that she can be claimed as a dependent but her parents should not actually do so on their return, correct ? 

A. Correct.  This allows her to claim the AOTC. But you lose the $500 dependent credit.*  

Q. Can she claim the AOTC?
A. Yes, but not the refundable portion.  The AOTC should fully wipe out her tax liability. TT should handle this automatically when she answers that nobody WILL be claiming her as a dependent (even though somebody [you] CAN claim her). 

Q. The parents house is paid off, there’s no mortgage. Does that mean there's little or no home/house support?

A. No.  In that case, the value of the home/house support, in the support calculation, is the fair market rental value of the home plus utilities & other expenses (e.g. real estate tax & insurance) divided by the number of occupants.

Q. She spent at most 2-3 weeks at home during 2024?

A. It's still her primary residence, for income tax purposes, and it's full year value is used in the support calculation. Although this is a "bad" rule in your situation, it's a good rule for most parents of college age students. 

*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 (with earned income) increased. However, they only qualify for an education credit, if they are not actually claimed as a dependent.

[alecfuhrman]

Thank you! This was extremely helpful