@ronschaeff wrote:
Hello CatinaT1, thank you for your reply.
As a followup to my initial question, I am wondering if is there a benefit for our 2 adult children to claim themselves on their individual returns, versus us, claiming them as dependents on our return, especially since we have over $400K in income? Thanks.
There are certain situations where high income parents are not eligible for the American Opportunity Credit (because it phases out). In such cases, the child might qualify for a credit, if the child has income earned from working. The parents will lose a $500 tax credit by not claiming the child as a dependent. If the child qualifies for more than $500 of AOTC, it may be advantageous for the parents to not claim the child(ren).
I believe that for the child to benefit from the AOTC, they need more than $13,000 of taxable income. But @Hal_Al will be more up to date.
It's important to note that there is no "free money" from the AOTC for a student under age 24 whose parents are alive. Any AOTC credit is limited to tax the child owes, and the child only owes tax if their income is more than $13,000.
If you go this route, the child must still answer "Yes, I can be claimed as a dependent by another taxpayer?" if they can be claimed. There is a followup question, "Will the person who can claim you, actually claim you this year?" and the child would answer no.
Your children can test their tax returns to see if they get any credit, before filing. But if their income is less than $6000, I don't think they get any credit, and the parents should still claim them.
