Education

Just a few things to point out before I provide you "the whole shebang" straight from IRS Publication 970.

my mother does NOT provide ANY of my financial support,

Doesn't matter. Per IRS Publication 970 there is absolutely no requirement for your parent(s) to provide you any support. Not one single penny. The support requirement is on the student and *ONLY* the student. It reads as follows:

If the student did not provide more than 50% of the students own support then the parent(s) qualify to claim the student as a dependent on the parent's tax return. Scholarships, grants, 529 funds, gifts from Aunt Mary, etc. *do* *not* *count* for the student providing their own support.

Several things to clarify about the above statement. First, the key word in the above is *qualify*. There's nothing that states your parent(s) must claim you. But if they *qualify* to claim you you flat out *must* select the option to indicate "I can be claimed on someone else's return." It does not matter if they claim you or not. Period.

Second, there are only two possible ways a student can provide more than half of their own support.

     1) The student as a W-2 job or is self-employed and earned a sufficient amount of money during the tax year to justify a claim to having provided more than half of their own support.

     2) The student is the *PRIMARY* borrower on a *qualified* student loan and sufficient funds were distributed to the student during the tax year to justify a claim to having provided more than half of their own support.

Third, it is still possible for the student to have earned a million dollars in the tax year, yet the parents still qualify to claim the student on the parent's tax return. As an exaggerated example, lets say the student recevied $60K in scholarships and grants during the tax year, and took a $40K distribution from a 529 plan in the same tax year. That's $100,000.00 of "third party" income received by the student. So that means the student would have had to earn "at least" $100,001.00 to claim they provided more than half of their own support. But wait, that won't fly with the IRS. There is absolutely no way on this green earth that the IRS will ever buy into a student *needing* more than $200,000 as an undergraduate for one tax year. Even including the qualified education expenses won't come anywhere close to that. So this is a case where even if you earn a million dollars, you're begging for an audit if you try to say you provided more than half of your own support.

except for what my dad pays.

Any money given to you or spent on your behalf by "either" parent is third party support. Basically, if you didn't go out and "do something" to earn it, then it's third party support. Period.

can I claim myself?

Don't even try - unless you want to risk an audit on this about 24-36 months down the road after you file. Will you really need that headache at that point in your life?

Now here's the "whole shebang" as promised.

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

Now there are two separate determinations to be made here.

• Who claims the student as a dependent.
• Who reports all the education expenses and claims all the education credits.

First, who claims the student as a dependent?

If the student:

Is under the age of 24 on Dec 31 of the tax year and:

Is enrolled in an undergraduate program at an accredited institution and:

Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:

the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

Then:

The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”.  To reiterate:

If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.

Who reports all the education expenses and claims all the credits?

If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:

The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent, then:

The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return.

.If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses,  then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

 If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s investment income exceeds $1,050 or if the student’s earned income when added to the excess scholarships/grants does NOT exceed $12,350 for the 2019 tax year, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $12,350, then the student should file a tax return so as to get those withheld taxes refunded.

1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to and included in the total on line 7 of the 1040.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is included in the total on line 7..

Finally, out of pocket money is applied to qualified education expenses. However, take ***SPECIAL*** ***NOTICE*** that the tuition and fees deduction expired at the end of the 2017 tax year and was not renewed for the 2018 tax year. It’s unknown if it will be renewed in the future. If it is renewed for the 2019 tax year, the only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money. As of this writing, (3/26/2019) congress has not renewed the out of pocket expense deduction, which expired in 2017.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.