Calculating Support with Scholarship

[ayuan27]

I am a undergraduate student (under 24) and am trying to decide whether I can be claimed as a dependent by my parents.  I am a bit confused on how to calculate my total support to determine whether I provided more than half of my own support.  I'll make up some numbers as an example - suppose I paid $10K of my expenses from earned income, my parents paid $8K of my expenses during the year, and a scholarship I have paid $30K of my expenses (the scholarship exceeds qualifying education expenses if that matters).  Based on looking at Pub. 501 and Section 152 of the tax code, I feel like there are two possible interpretations:

1) (The common interpretation I have seen on the forums thus far) I haven't provided half of my own support.  My total expenses were $48K, the scholarship paid for $30K of my expenses and I only paid for $10K, and scholarships don't count as me providing my own support - $10K / ($10K + $8K + $30K) < 1/2.  I can be claimed as a dependent.

2) Section 152 of the tax code says that "amounts received as scholarships... shall not be taken into account" for the purposes of determining whether a student provided more than half of their own support and Pub. 501 also notes "a scholarship received by a child who is a student isn't taken into account..." and later on, in the qualifying relative section, notes not to count scholarships received by student children in total support.  Then my total support provided, not accounting for the scholarship amount, is $18K, and I provided more than half of my own support ($10K / $18K > 1/2).  I can't be claimed as a dependent.

I'm confused because it seems that the first interpretation counts scholarships received in total support which goes against what's stated in Pub. 501, while the second interpretation seems to omit a lot of expenses incurred during the year (namely, education expenses).  Which interpretation is correct, or are both reasonable?  Thanks!

[Hal_Al]

You are simply misinterpreting the 2nd part.  Scholarships are third party support and do not count as support provided by the student, under the qualifying child dependent rules.  

Educational costs ARE part of your support.

[ayuan27]

Sorry for not replying earlier.  Where in the laws/publications are you seeing that scholarships are counted as third party support?  In Pub. 501 it explicitly states to not count scholarships received in total support, and the relevant test is whether the student provides more than half of their total support.  (Thus, scholarships are not counted as provided by the student, i.e. the numerator, but are also not counted in the denominator of total support, in my reading.)

[Hal_Al]

I'm interpreting the wording on the support work sheet.

http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

You do not include scholarships  on line 1 (student's funds).  So, it's not in the numerator.

You do include total educational expenses on Line 15, even those paid by scholarship.  

So, scholarships, per se, are not entered on the work sheet.  So "scholarships are third party support" may not be technically correct, but that's the effect.

[ayuan27]

I see, thank you!

[Carl]

There are only two possible ways a student can lay any claim to providing more than half of their own support.

1. The student is self-employed or has a W-2 job that earns them sufficient income to support a claim of providing more than half of their own support. The earned income must be more than the total of all third party support (scholarships, grants, 529 distributions, Gift from Aunt Mary, money from mom and dad, etc.) received from all sources during the tax year.

2) The student is the *PRIMARY* borrower on a *qualified* student loan and sufficient funds were distributed to the student during the tax year to support a claim of providing more than half their own support. Additionally, the amount distributed from the loan during the tax year must exceed the total of all third party support (clarified above) received from all sources during the tax year.

Even if one or both of the above are true, it's still possible for the student to qualify as a dependent on the parents tax return. If you'll note, there is *NO* limits on the student's earned income, or borrowed money. The student could earn a million dollars (literally!) and still qualify as a dependent on the parent's tax return.

This is because this is based on "support", not income. The support costs also have to be reasonable. For example, if the student earned $100,000 during the tax year, and also received $80,000 in scholarships, grants, 529 distribtions, etc, that would mean the total cost of support for the student for the entire tax year would have to exceed $160,000. That is not going to fly with the IRS for an undergraduate student for just one year. I don't care where the student may be attending college on this planet.

In other words, costs have to be reasonable. So no $5000/mo penthouse suites with steak and eggs for breakfast and steak and lobster for lunch and dinner everyday as they take their high cost chauffeured limousine to class each day.

Yeah, it sounds ridiculous. But you get the point. 🙂

[lcolantuoni14]

Trying to figure out if my son can file as independent on his 2021 taxes or Hass to be claimed as a dependent. I do not provide half of his support. His father who I am not married to does not provide half of his support. He earns $10,000 in a summer internship that was out of state. 

My son has a large scholarship on his 1098 t box 5 is much greater than box one. In 2021 breaks from school were canceled due to Covid. He lived at school and out of state during the summer. If neither parent provided more than half of his support… and he used his income and any savings he had and mostly the scholarship to provide his support can he be considered independent??  

[lcolantuoni14]

I’m reading this now and it doesn’t make sense that the income has been more than all third-party including scholarship and parent support 

If my son has income of 10,000 from a summer internship gets a huge amount of scholarship to pay for room and board and neither of his parents provide support and his internship is out of state then is it considered that he provides half of his support? Neither of the parents do. He goes to Princeton and he gets a sizable scholarship. Need to file his 2021 extended taxes and have been getting H&R Block telling me this scholarship can be used to count towards support and Turbotax says no it cannot - So nobody providing half of his support? Isn’t he providing half of his support if he’s using his income and any savings he has and not getting anything from his parents? 

[Hal_Al]

With the tax law change, effective 2018, most students will get the same refund (or pay the same tax) whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased.

To claim the refundable portion of the American Opportunity Tuition Credit, a fulltime student, under 24, would have to have supported himself (more than half his support) on earned income (not savings and scholarships). To claim the non-refundable education credit, it's only neccessary that the parent forgo claiming him as a dependent (and forgo getting the $500 dependent credit). 

For tax years 2020 and 2021, there was the issue of qualifying for stimulus money, which only non dependents could claim on their own return.  But, if he's your dependent, you get to claim the 2021 Recovery Rebate Credit/Stimulus. 

Q.  So nobody is providing half of his support? 

A.  Yes, if the tuition and expenses paid by scholarship (third party) are large enough.  In that case, the parent can still claim him as a dependent, but he can not claim independent. To claim independent, it is not neccessary that he provided more than half his own support, only that he doesn't qualify as someone else's dependent (e.g he is over 24 or no longer lives at home).

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. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. They are interrelated but the rules are different for each.

The support test is different for each 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.

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

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.

Note: Since his income is more than $4300 (and/or you did not provide more than half his support), he can not be your Qualifying Relative dependent.  So, he either qualifies as your Quailfying Child dependent or not a dependent, at all.

[lcolantuoni14]

Hi -

I do not think that I was clear with my question.  I do not understand your answer.

We are not interested in the American Opportunity credit.  And I do not need info on the types of dependents.

The question is can my son be independent.

Your answer said Yes?? I did not udnertand if you are saying yes or no! You said 'Yes, it the tution and expenses paid by scholarship (third pary) are large enough. But then you go on to say the parent can still claim his as dependent - BUT thats wasnt my question - I want to know if he can claim independent??  Then you say he cannot claim indpendent - and that it is not necessary for him to provide more than half his support - but thats what I ahve read all over - you said that he can be indpendent if he doent qualify as somoen elses dependent.  in 2021 he cannot be claimed a a dependent by either parent. IT is not clear how to calculate support - that worksheet is absurd that is provided and he doens stay in either parents house - so what caluclation is sued to determine his support? If he porvided  more of his own money than he got from any parent more than 50% but also lived off scholarhsip then how do we determine if he provided 50% - does scholarhsip go in denominaator or just the total from him and aprents wtih his amt in numerator? In which case he provided 505 of support.

Howver that amount was not enough to live on - e used the scholarhsip as well...teh schoalrhsip provided more than any parent - parents provided no supoprt. 

I have to get this done byu Friday so I hope you can answer - it is better for him to be indpendent in 2021 - also in 2022 he will not be indepednent becaause he will not be porivede 50% of his support and scholarhsip will be much smaller - can he be indpendent one year andno the next or once he is indpendent he must stay that way? Thanks so much

I am a single mom on disability and not married to his father.  Neither of us provide 50% of his support and He lives at school and then when not at school -i.e summer he was out of state for an internship and supported himself with savings and earnings. He goes to Princeton and has a sizeable scholarhsip iwth box 5 far in excess of box 1 on 1098t. 

Can scholarship count as part of his support if it is very large? And if not, then if he is not a dependent for either parent - and lives at school or out of state in summer- then why can't he be considered indpendent. hsi twin sister is filing first time and had loans that did count as her support so is independent. 

You mentioned 

[Hal_Al]

Q. The question is can my son be independent?

A. My opinion is that he cannot claim independent.  For tax purposes, the real question is can anyone claim him as a dependent.  If the answer to that question is no, then he can claim independent.

As previously stated, there are two types of dependents. He cannot be a qualifying relative because his income is too high.  So we look to see if he can be a qualifying child (QC) dependent.

1. I assume he is under 24 and a full time student. He meets the QC age rule.

2. From your description, he does not provide more than half his own support (most of his support expenses are paid by scholarship). He meets the  QC support rule.

3. Does he reside with the parent? When a student goes away for school, he is still considered as living with the parent, even if living off campus.   Being away at school is only a temporary absence. "He was out of state for a summer internship" may introduce some fuzziness in that question, but I'm of the opinion that that is still only a temporary absence, and he resides with you.  He meets the QC residency rule.

My opinion is that he cannot claim independent because he can still be claimed as your QC dependent.  Note that it is not neccessary that you provided any of his support; only that he didn't provide more than half his own support.  In most cases, like yours, this ia a good thing. The parent usually wants to claim the student.  Why do you want the student to be able to claim independent.  There's usually nothing to gain.

Q. Can he be indpendent one year and no the next? 

A. Yes

Q. Can scholarship count as part of his support if it is very large?

A. Yes and no.  Scholarship money is ignored.  But the expenses it pays (tuition, room & board etc) are support not provided by the student. So, with a large scholarship, it would be nearly impossible for him to say he provided more than half his own support.

Q. His twin sister is filing first time and had loans that did count as her providing her own support.  So she is independent?

A. That is correct, as long as the loans are solely in her name.  If either parent is a co-signer, then that loan money is not considered her own support. Again, for most people, you don't want the student claiming independent.  The parent misses out on the dependent credit and AOC and the student cannot usually claim either.

[lcolantuoni14]

Hi Am a single mom on disability and dont even need to file.It is better for him to be indpendent and also if he applies for state halth isnruance which he will need after graduation he must be indpendent I think. So, I am not typical parent and not looking for write offs.

Also I have another  impotant question as I think I might have wrong turbotax version. I read someone asking ig there son has internship out otf state - can they deduct temporary housing. My son went out of state or internsip cost 4700 for rent and that doenst include the airfare  and hotels to get out there - he drove from nj t colorado and had travel expenses but I am  more concerned about ability to deduct the 4700 in rent - he is using standar deduction but from what I read this can be taken off under job expenses in the w2 income section but I do nto see it there -  I have premier version - do I need a different version home an d business becuase I wont have time to get it I dont hink and why would that be? The only thinsgs I see related to job expenses in premier are not under w2 income and are for military - pelase helpo as time is of essence if i need to get a new version of turbtotax and start all over again. 

[lcolantuoni14]

I apologiz for typos I have a hand tremor - thank you for your response. I sent a respone but wanted to add to it and had another question about his temporary living expenses 4700 for internship - I erad that can be put in w2 job expense section but I dont see it anwyerhe can you help me? I hope that I dont need a different version of turbotax?? 

REgarding your asnwer - thank you but here is some clarification

That is the issue - not sure. 

1)He is my child

He is only 22 so qulaifying child QC?

2) I am not sure how you calulate half of his support - the worksheet asks for housing expenses is too hard and he but he is not here more than 2 nights a year and I dont know about h is father. 

I do not undertand how scholarhip factors in - he made 10k in summer - if neither parent  provides him with support - he had large schlarhsip but still no parent provided half of his support - but you sayd schoalrhsip causes him to not pprovide half of his suppoort - i read other stuff on here about pub 501 and another similar quiestion but ewanting to know if daughter is depdnent - if what my son makes is in numerator and someone on turbotax mentioned that scholarhsips are not inlcuded in numeraotor or denominator - then if you ingore scholarhsip then my son does provide more than half his support....I cant remember where I aw the questions and had several confusing asnwers. 

3) where he resides: AS far as where he lives - obviously at college - and as I said in summer out of state supporting hismelf.  He usually spends breaks at college. the only time he ever comes home is on holiday - a day with me and a day with his father  - It is a difficult heartbreaking family situation - so his i snot a normal situation.   He only stays here 2 night a year xmas eve and another night. I do not now when he stays at his fathers as it is an adversarial situation and no communication. 

3) why do I want him independent - 

also besides me being single mom and disability and no need to write off anything - I dont even have to file - so that is unusual  realize most poeple want to claim their kids

as i said he may need to be indpendent to qulaify for state health insurance - i cant get an asnwer from them...and i jsut want to make sure it is ok for him to be indpendent in case that is required but want to do the correct thing on taxes. His father is on medicaid NJ and being dropped and so then is my son being dropped - his father told him to be independent and apply on his own - not sure if thats required by state health isnurance mdicaid - so complicated situation 

but you are saying that if nobody can claim his as dependent then he can be indpendent? 

If scholarhsip is ignored - then wooudnt that mean that my son does pay half his suppport since you dont count scholarhsip? Sooemone on turbotax on phone last apriol said becuase it was unsudally large should cvocunt s his  own support ! I file dextension but now I am behind the gun and was waiting for the father to give me infomation to help decidebut he didnt...

And I sent you another mesage about where to put his 4700 in temprary living expenses as someone wrote in about it and was told to put it in w2 income section under job expenses  but I do nto see that and now amafarid I got wrong turbtoax version - i have premier is is suppsoed to be home busines to do that? I have had cd version onmy pc so allt he tax versiosn would then have to be done over again if i ned that version right? Can you tell me where that would go on premier version as I cant find it and the question i think was from 2019

[lcolantuoni14]

Hi Al  thanks for all of your help with qeustion in indepdent I am asking another qstn about where to put my sons temp living expenses for internship out of state and caem across the following that was asnwere in 20-19 but I cant find w2 job expoenses in income - and nowhere else - where can i pout that and is premier the worng version as i got cd and did 8 versions of taxes on hard drive that i would need to do over and get new version of turbotax quickly to make monday oct 17...do i need home and business sas that would really stink -this is what was posted that i found but cannot find where this is in w2 income job expenses doesnt show up in poremier and sorry for typos due to tremor

Level 9

‎May 31, 2019 11:14 PM

Yes you can deduct the fees you had to pay for your temporary housing while you were working the internship. Depending on how you were paid for the internship will determine how you deduct the expenses. If you were paid via W-2, you will put the deductions under Job Expenses for W-2 Income. If you were paid with a 1099-MISC, then you would enter the expenses under the 1099-MISC. When you enter in the income into the program, keep going through all the interview questions till you get to the deductions and credits section. 

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[Hal_Al]

@lcolantuoni14  said "where he resides: AS far as where he lives - obviously at college".

In that case, he cannot be your dependent.  He can file independent.  The support question is moot. To be your QC dependent, all 3 rules must be met (age, residency, support). 

But, that also means he cannot go back to being your dependent for 2022.

He cannot deduct his living expenses during the internship, if he was a W-2 employee. If his pay was reported on a 1099-NEC (instead of a W-2), he is considered self employed and  the answer MIGHT be different (but probably not). 

If you are a regular W-2 employee, you are no longer (effective 2018) allowed to deduct mileage and other job expenses.  Even when you were allowed to, it was only an itemized deduction subject to the 2% of AGI threshold.

Despite the 2019 date on the other post, it was really answering a pre 2018 quesion (there was a 2019 transformation of this forum and the old questions were migrated en masse).