You say your Son is being claimed as NC dependent. As the other reply said, the first thing we need to do is verify that you are allowed to that. You probably can. Almost all college age students continue to be their parent's dependent, even if attending school out of state.
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.
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:
- 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
- He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
- He lived with the parent (including temporary absences such as away at school) for more than half the year. Staying over, for work, for the summer break, makes that a little less clear. But the general rule is, his primary purpose, for being there, is still for school. Depending on other details of his living conditions and his intent, he is probably considered as temporarily absent, from your home, and is still your dependent.
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 himself.
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, even if he only comes home for short visits.
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
So, if he is still your dependent, he files a non resident MA tax return, to pay tax on his MA income. He files a resident NC return, reporting all his income, including the MA wages. NC gives him a credit, or partial credit, for the tax paid to MA. So, there is seldom any double taxation.
