Transition year

[tx999]

My son graduated in 2023.  He made enough working two part time jobs that he's filing his own return.  That said, he did live at home the entire year and was a dependent.

If we claim him as a dependent will it impact his filing?  I was told that if we do then he's not entitled to the standard deduction.  There's a box in TurboTax on his return asking "will anyone else be claiming you as a dependent?".  I've toggled it to both yes and no and it did not change the amount he owed either way.

[VolvoGirl]

First of all how old was he on Dec 31?  How much income did he have?  Yes he still gets a Standard Deduction but it is limited.

The Standard Deduction for an individual for whom an exemption can be claimed on another person's tax return is limited to the greater of:

…..$1,250 or

…..Your earned income for the year + $400 (but not more than 13,850))

So you would get a minimum of $1,250.

See Table 8 Standard Deduction worksheet for Dependents on Page 26

https://www.irs.gov/pub/irs-pdf/p501.pdf

[Hal_Al]

With the tax law change, effective 2018, dependents with earned income (jobs)* will get the same standard deduction whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased. However, he only qualifies for an education credit , if he is not a dependent.

*Assuming they make, at least $13,450 for the year. 

[Hal_Al]

Can the student be claimed as a dependent in the Graduation year? 

If he/she was a student (under 24) for parts of at least 5 months and lived with you for more than half the year, and did not provide more than 1/2 his own support for the whole year, you can still claim him. Be sure he knows you're claiming him, so he doesn't claim himself. He can only be claimed once. But, he can "file taxes" without claiming his own exemption.

The real question is who should be claiming him in this "transition" year to adulthood. You two have to agree on who is going to claim his exemption. Each should do their taxes both ways and see which way the family comes out best.  Even then, you have to meet the rules. 

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.

The rule is that a child of a taxpayer can still be a “Qualifying Child” dependent, regardless of his income, if:

1. he is a full-time student under 24 for at least 5 calendar months of the year (graduating in May usually means you meet the 5 month rule)
2. he did not provide more than 1/2 his own support  (scholarships are considered 3rd party support and not support provided by the student). 
3. lived with the parent (including time away at school) for more than half the year

So, it usually hinges on "Did he provide more than 1/2 his own support in 2023.

The support value of the home you provided is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants. IRS Publication 501 on page 20 has a worksheet that can be used to help with the support calculation. See: http://www.irs.gov/pub/irs-pdf/p501.pdf  (page 15)

[tx999]

He was 18 on Jan 1.  He made ~$17500.

Right now his return shows the full $13850.  I figured toggling the flag would drop it but it doesn't seem to.  Thus my confusion / question.

[JohnB5677 · Accepted solution]

As @Hal_Al stated. In 2018 there was a tax law change,  

• Exemptions were eliminated.
• All individuals could then get the full Standard deduction, regardless if they were claimed as a dependent on another tax return.
• That is why you didn't see a change as you toggled back and forth on the dependent question.

There are several conditions to qualify as a dependent.

The general conditions are:

• A dependent must be a U.S. citizen, resident alien or national or a resident of Canada or Mexico
• A person can't be claimed as a dependent on more than one tax return, with rare exceptions
• A dependent can't claim a dependent on their own tax return
• You can't claim your spouse as a dependent if you file jointly
• A dependent must be a qualifying child or qualifying relative

He will not be eligible as a qualified relative because he has earned too much.

Lets see if he can be a qualified child

• Relationship: 
  • He qualifies as your son
• Age: Be under age 19 or under 24 if a full-time student.
  •  He qualifies, but was he 18 on 01/01/2023 or was it 01/01/2024? 
• Residency: Live with you for more than half the year, with some exceptions
  • He qualifies,  He did live with you the whole year
• Support: Get more than half their financial support from you
  • This may be the pinch point!
  • Can you document that you provided over half of your son's support?
• Joint return: Not file as married filing jointly.
  • He qualifies.  He is filling Single. 

With the issue of support pending, it does look like you can continue to claim your son as a dependent.

See the IRS article Dependents for more information.

Please contact us again with any additional questions or to provide some additional details.

[tx999]

That's exactly what I was looking for.  Thanks a million.