For 2021-adult child, age 23, lived with us the entire year. Including living expenses and high medical bills, we provided well over half of her support. She started the year attending full-time college online (from home), but had to drop out in early April due to COVID factors. She tried to return to school during summer term, but the online classes proved too much and she withdrew after a couple of weeks.
She received $14,900 in Social Security disability (Disabled Adult Child or DAC), which paid for less than half of her living and medical expenses. From part time work from late summer to year end, she earned $7800 working part time. She saved $6500 of this into an ABLE account to help fund future living expenses when she moves out.
She had a scholarship that covered a large portion of her college costs. We used 529 funds from her grandpa for her additional school expenses. Because there will be left over money in the 529 due to her cousins not attending college, we withdrew the scholarship amount from the 529 to avoid the 10% penalty getting it out in the future. This added $8901 in Schedule 1, Line 8z expenses to her 1040, most of which was not taxable due to the standard deduction.
Questions:
- Can we claim her as a dependent? Per the IRS dependent tool, this appears to depend on student status. Which definition of student status applies? Turbo Tax is automatically listing her as a student (probably due to the 1099Q), but IRS guidelines looked up separately seem to say she has to attend for at least some part of 5 mo and be full-time be a "student". Does going only 2 days in one of the months or dropping out affect this?
- TT is automatically classifying her as a student, which triggers Form 8615 and her needing to pay tax on a small amount at our marginal rate. Not sure if this is right because TT never asked if she was full-time for 5 mo. Because we think she might not qualify as a student under that rule, we did try to delete Form 8615, but TT kept putting it back. We then went back through all the questions and no matter what we marked anywhere and everywhere about not being a student, Form 8615 could not be removed. However, marking her as a non-student on one of the Question sections does increase the tax refund by $700, but then we probably can’t claim her as a dependent and take off the substantial medical bills we paid for her and we probably can’t get the Lifelong Learning tax credit of $2k??? (She already used 4 years of AOTC trying to get through college previously).
- Can you please advise about whether she’s a dependent, the correct way to determine student status for the situations that apply to her, why we can’t turn off form 8615 if we don’t need it, and what to do about medical expenses we paid and the Lifelong Learning credit if she isn’t a student. If not a student, could we still deduct the medical and she get the LLL credit? Also, sge didn’t get either of the first two Covid checks (due to being a student or being disabled?), but she finally did get one (3rd, I think), so does this factor in somehow? Any other pertinent info we need to look at? Thank you for any insights.
