Recap:
1. Who claims the education credits? You, if you claim him as a dependent. Himself, if he can't be claimed as a dependent.
However, there is an exception to this rule. In some cases, a child can claim the AOTC in their name even if they are a dependent. This usually only makes sense when the child has a significant income from working (he does) and the parents are not able to get the AOTC due to a high income. To use this provision, the parents do NOT claim the child as a dependent. The child answers "can you be claimed as a dependent?" as YES, and then to the follow-up question, "will the person who could claim you actually claim you this year" answer NO. This question only affects the AOTC. The child will still be treated as a dependent for other purposes (not eligible for a stimulus rebate, for example.)
2. Can he be claimed as a dependent? Yes, if you provide more than half his living expenses. You will have to add everything up on both sides. His living expenses include tuition, room and board at college, medical insurance, clothing, travel and entertainment. His living expenses also include a percentage of your housing expenses (rent or mortgage, food, utilities, etc.) considering that he still "lives at home" for tax purposes. Expenses you pay for include any direct support for tuition and living expenses plus the value of housing you provide in your home. Expenses he pays for includes any expenses he directly pays, plus any student loans in his name. His own earnings count as support he provides himself if he pays his own expenses but do not count as support if he saves the money or provides support for other persons (like a partner or child). There is a worksheet on page 15 to help you out. https://ttlc.intuit.com/community/forums/replypage/board-id/205/message-id/219533
3. What about his own income? He must file a tax return in his own name for all his income, including income earned from working. If he receives income for providing a service, it will be reported as "Self-employment" income as he is considered to be his own small business, even if he is just doing Uber and Doordash as an independent contractor, he is still considered a small business. This will normally be reported on a 1099-NEC, if he is paid more than $600. But, he must report all his self-employment income even if it is not on a 1099-NEC, such as cash tips or small jobs that don't issue a 1099.
He will owe 12% income tax on net earnings over $12,550 and 15% self-employment tax on all his net earnings after deducting expenses. He is required to make estimated payments to the IRS 4x per year. If he over-pays he gets the difference as a refund. If he skips the estimated payments or under-pays, he can be subject to penalties and interest even if he pays in full at tax time. If this will be the first time he has owed a penalty, he can request a one-time abatement (cancellation) of the penalty.
