If my daughter in college files as a non-dependent (we do not claim her), which tax return should we put the 1098-T on?

[specaam]

My daughter is 20 years old and a junior in college.  She will likely exceed the income threshold for filing because of her combination of employment income and COVID relief unemployment income she earned at various times throughout the year.  If she files as a non-dependent and I do not claim her, but we pay her tuition, whose taxes can the 1098-T be filed on and, if it can go on either, does it make a difference in the grand scheme which return it goes on?  For reference her total income will likely be around $15-20K while ours will likely be over $120K, if that makes a difference.

[Bsch4477]

You would almost certainly be better off claiming her and you getting the education credit since, if you qualify, you can get the refundable part of the American Opportunity Credit and you get the stimulus payments for her.  But to answer the other part of the question, you can choose not to claim her in which case she would be able to claim the non refundable part of the education credit. If you don’t claim her she would still have to check the box saying that someone can claim her and she would not get any stimulus payments. 

[specaam]

Thanks.  My understanding was that if she is an over-17 dependent than we would get no stimulus payment for her at all, that she would have to be independent in order to receive that.

[Bsch4477]

The catch is that if she CAN be claimed as a dependent she can’t get the stimulus.  She would have to check the box saying that someone else can claim her. 

[Hal_Al]

The answer to the basic question is that the tuition credit (and the 1098-T) goes with the student's dependency.

If the student is not your dependent, for 2020, you cannot claim the tuition credit and the 1098-T does not go on your return.

But as the conversation as already diverted to: the real question is does she qualify as your dependent.  

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, 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 him self.

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

 Furthermore, 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 if he supports himself with earned income (unemployment is unearned income). You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit. 

Taxes are complicated (particularly with her income) and the only way to be sure which way is best is prepare returns both ways and compare.  Just to complicate it more, whether she is your dependent or not, the unearned unemployment will, most likely subject her to the "kiddie tax".