With the tax law change, effective 2018, most students will get the same refund (or pay the same tax) whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased.
To claim the refundable portion of the American Opportunity Tuition Credit, a fulltime student, under 24, would have to have supported himself (more than half his support) on earned income (not savings and scholarships). To claim the non-refundable education credit, it's only neccessary that the parent forgo claiming him as a dependent (and forgo getting the $500 dependent credit).
For tax years 2020 and 2021, there was the issue of qualifying for stimulus money, which only non dependents could claim on their own return. But, if he's your dependent, you get to claim the 2021 Recovery Rebate Credit/Stimulus.
Q. So nobody is providing half of his support?
A. Yes, if the tuition and expenses paid by scholarship (third party) are large enough. In that case, the parent can still claim him as a dependent, but he can not claim independent. To claim independent, it is not neccessary that he provided more than half his own support, only that he doesn't qualify as someone else's dependent (e.g he is over 24 or no longer lives at home).
There are two types of dependents, "Qualifying Children"(QC) and Other ("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, student status, 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.
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
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.
Note: Since his income is more than $4300 (and/or you did not provide more than half his support), he can not be your Qualifying Relative dependent. So, he either qualifies as your Quailfying Child dependent or not a dependent, at all.
