"Does it affect me or my parents if I'm a dependent on my parents taxes and I start working and file my own taxes?"
Yes. A person's exemption ($4050 deduction) can only be claimed on one tax return (either yours or your parent's; but not both). That mean one of you will be paying tax on an additional $4050 of income.It's best if your parents still continue to claim you. Not only are they taxed at a higher rate, child dependents mean additional tax breaks.
That said, it's not optional who gets to claim you. The rules must be followed. 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 you provided is the fair market rental value
of the home plus utilities & other expenses divided by the number of
occupants.
Furthermore, there is a rule that says IF somebody else CAN claim him as a
dependent, he is not allowed to claim his own exemption. If he has sufficient
income (usually more than $6350), he can & should still file taxes; he just
doesn’t get his own $4050 exemption (deduction). In TurboTax, he indicates that
somebody else can claim him as a dependent, at the personal information
section.
Even if he had less, he is allowed to file if
he needs to get back income tax withholding. He cannot get back social security
or Medicare tax withholding.
