Form 8615 and definition of "full-time student"

[Dragon2021]

Please HELP!  Re Form 8615

My daughter who was 22 at the end of 2021, does not meet the "full-time" student definition regarding having attended a college within at least 5 months during 2021 (she was only attending college Sept-Dec).  So we can't claim her as a dependent on our joint return.  However, during the Fall semester 2021, the total credits of classes she took considered her full-time (although she didn't earn all the credits).  Her 1098-T is marked for "Checked if at least half-time student".  

Under the Who Must File, it states Form 8615 must be filed for any child who meets ALL the following:

1.  Child has more than $2,200 unearned income (YES)

2. Child is required to file tax return (SINCE I CAN'T CLAIM HER HAS A DEPENDENT, AND SHE HAS EARNED INCOME, SHE NEEDS TO FILE A RETURN-YES)

3.  Child is either:

           -Under 18 (NO)

           -Was 18 on 12/31/21 & didn't have earned income more than half of child's support (NO), or

           -Was a full-time student 19-under 24 yrs old @ end of 2021 (MAYBE?  WHAT IS DEFINITION FOR FULL-TIME STUDENT FOR THIS PURPOSE?)

4.  At least 1 parents was alive at end of 2021 (YES)

5.  Child doesn't file joint return for 2021 (YES, SHE IS NOT FILING JOINT)

Then, if she is considered a full-time student regarding the 8615 and this form needs to be completed, is it completed w/her tax return OR my return as the parent? 

Then, to make it more complicated, I have a second daughter who can say YES to all 8615 questions (she's a full-time student based on the 5-month definition and # of credits in Spring and Fall 2021) so she qualifies as a dependent on my return and she is filing her own individual tax return.  Again, is the 8615 filed w/her return or mine as the parent claiming her as a dependent?  AND, if you confirm they both are required to file Form 8615, even though only one of them is on my return as a dependent, do they both have to put each other's info on their respective 8615's along w/our parent taxable income?

Sorry for length but head is spinning!  

[RaifH]

No, your first daughter does not need to file Form 8615. Your second daughter would be required to include it on her return, but there might be another way that may be easier. 

Form 8615 will be attached to each child's return to correctly calculate the taxes due on their returns. The form uses your tax rate to tax their unearned income. This is to close a loophole that allowed parents to pay their child's tax rates on things like dividends and capital gains. 

Since your first daughter is no longer filing as your dependent, she does not have to pay taxes at your tax rates. As you said, to qualify as a full-time student, she has to be full-time for any part of five months of the tax year. She falls just short if she only went from September through December, assuming she was not attending a different school in the earlier part of 2021. 

An alternate method for your second daughter may be to include her income on your return. Form 8814 is used if you include all the income from your second daughter on your own return. However, this can only be used if your daughter's income is solely from interest and dividends and their total income is under $11,000. If your second daughter meets those eligibility requirements, she would not have to file her own return. For more information on reporting your children's income, see this IRS tax topic.

[Dragon2021]

Thank you for your response.  When we did my first daughter's taxes, at the end after checking, Turbo Tax asked about the 8615.  We answered the question indicating she didn't need this form (I apologize, I didn't note the exact question/answer.)  Turbo Tax let us move forward, rechecked and said No Errors.  However, we noticed her audit risk increased.  It's still within the green but towards the right end of green.  Does that indicate something may not be meshing as well as it should based on what we entered?  Or did I misunderstand what you said when you indicated my first daughter would not have to complete the 8615?  

We completed my second daughter's return with the 8615 which we did not enter anything about the first daughter's unearned income since my first daughter does not qualify as my dependent but my second daughter does.

Thank you again!

[RaifH]

I'm not sure exactly how TurboTax determines the Audit Risk, but I wouldn't read too much into it. The IRS does focus quite a bit of effort on people claiming refundable credits that they should not be eligible for, like people who should be dependents not filing as dependents to get a stimulus payment or the earned income credit or the American opportunity credit. 

However, that does not mean you should shy away from claiming whatever your daughter might be eligible for if she can legitimately claim those credits. Just make sure she can justify that she was not a dependent in 2021, had more than $4,300 of income so she can't be considered a qualifying relative, and does not meet the definition of a full-time student.