Can a 19 year old college student who used pandemic unemployment to provide more than half of their own support still be claimed by their parents?

[Anonymous]

The persons earned income was about $2,000. However, due to unemployment, their unearned income was near $20,000. Their parents did not provide more than half of the student’s support, but the st

[Hal_Al]

No.  His income disqualifies him as a Qualifying Relative and providing more than half his own support (regardless of the source of the income) disqualifies him as a Qualifying Child. 

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. 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 considered third party support and not as support provided by the student.
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

[Anonymous]

Wow great response @Hal_Al , thank you. Just out of curiosity, what purpose does the question “Did you support yourself in 2020? Supporting yourself means paying for more than half your living expenses with *earned* income.” It specifically asks if the filer supported themselves with earned income, not just if they supported themselves with any income. Why is this?

[Hal_Al]

There's two separate issues on support.

Where TurboTax (TT) specifically asks if the filer supported themselves with *earned income*, it's seeing if he qualifies for the refundable portion of the American Opportunity (Tuition) Credit*

For whether he can be claimed as a dependent supporting yourself means paying for more than half your living expenses with any money of your own, including savings, student loans (but not scholarships),  and income from any sources, including unemployment. 

In your family's case, it's a triple whammy.  He doesn't qualify as your dependent because he supports himself.  You don't qualify for the tuition credit because the student is not your dependent. He doesn't qualify for the refundable portion of the credit because he is under 24 and does not support himself with earned income.  The good news is that the non-refundable portion of the tuition credit should lower his tax liability to zero. 

*A full time unmarried student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. 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. 

[lychee]

You wrote that the student who supports himself with unemployment income still doesn't qualify for a education credit, or at least doesn't qualify for the refundable portion, because he is under 24 years old and does not support himself with earned income. Where does that age cut-off and earned income requirement come from? I don't find it on the IRS' description of the American Opportunity Credit: https://www.irs.gov/credits-deductions/individuals/aotc

- L

[Hal_Al]

Page 21 of Pub 970 says:

Refundable Part of Credit
Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2020 and the conditions listed below apply to you, you can't claim any part of the American opportunity credit as a refundable credit on your tax return.
Instead, your allowed credit (figured on Form 8863, Part II)
will be used to reduce your tax as a nonrefundable credit
only.
You don't qualify for a refund if items 1 (a, b, or c), 2,
and 3 below apply to you.
1. You were:
a. Under age 18 at the end of 2020, or
b. Age 18 at the end of 2020 and your earned income (defined below) was less than one-half of
your support (defined below), or
c. Over age 18 and under age 24 at the end of 2020
and a full-time student (defined below) and your
earned income (defined below) was less than
one-half of your support (defined below).
2. At least one of your parents was alive at the end of
2020.
3. You are filing a return as single, head of household,
qualifying widow(er), or married filing separately for
2020

https://www.irs.gov/pub/irs-pdf/p970.pdf

I think it's also on the instructions for form 8863.