There are two types of dependents, "Qualifying Children"(QC) and standard ("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, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. They are interrelated but the rules are different for each.
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 considered third party support and not as support provided by the student.
- 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, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
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It actually does not matter who paid the student's tuition. Only the person who claims him (as a dependent) may claim the tuition credit. So, for example, if the parents are divorced and the mother pays the tuition, but the father claims the student, on his taxes; the father is the only one who can claim the tuition credit. The mother cannot claim the credit and the student may not claim the credit.
Another example: the parent pays the tuition, but the student claims himself on his tax return. The parent may not claim the credit. The student can claim the credit (there are some restrictions on students under age 24).
