Usually the family come out best id the child can be the parent's dependent. But for 2020, the stimulus payment clouds that picture. If she already got the stimulus in 2020, then it doesn't matter. Otherwise, she needs to claim herself to get it on her 2020 tax return.
But as others have said, it's not optional. If she CAN be claimed as a dependent, she must so indicate on her tax return.
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, full time student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit. They are interrelated but the rules are different for each.
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
If those rules aren't met, she cannot be a Qualifying relative dependent unless her income is less than $4300 for the year.
