Student Loan Forgiveness

[Stikman]

Indications are my 22 year old daughter will be ineligible for $10,000  loan forgiveness  only because I claimed her in 2021 as a dependent for the $500 "other dependents" credit.  If this is the case should I file an amended return to remove her as a dependent then repay the $500 so she can claim the $10,000?   (Probably should wait for details first though.    

[DoninGA]

You need to wait for the details for this announcement.  Especially since there are going to be legal challenges on whether the President even has the legal authority to do this type of government loan forgiveness.

[Stikman]

 Thanks.  Most definitely need to wait.   I was not impacted by stimulus payouts but find  similar depended claim disqualifications were addressed by amended returns. Just a factor to keep in mind at this point. 

[NCperson]

@Stikman - does your 2020 or 2021 income exceed the limits for student debt relief? ($125,000 for single filer and $250,000 for joint filers)?  From what I read, the dependent remains eligible for student debt relief if YOUR income is below these limits. 

And it is not clear how the Student Loan Servicers are going to figure all this out  - they will NOT be able to access the IRS records.  

Also, and what you wrote wasn't clear, but if you amended your return to disclaim a dependent that was really a dependent so that the dependent could claim more stimulus money, that is fraud...(and while you always have the right to claim or not claim a dependent, the fraud is by the dependent who unchecks the "I can be claimed by some one else" box when the can certainly be claimed by someone else). hopefully that is not what I read in your statement.

[NCperson]

New York Times: 

"Current students may also be eligible, though if you are claimed as a dependent by someone else, your eligibility will be based on that person’s income and not your own."

[Stikman]

Thanks!   My Initial source only listed the $125,000 figure and I failed to check other sources.    At $250,000 per couple filing jointly  my daughter  should be in the clear. Would have gone over $250K in 2020 but I retired mid year. 

[Stikman]

Whoa! My daughter has never filed a return so she most definitely did not commit fraud.  We never even got close to qualifying for stimulus money  (income over $200K each year) and I never entertained the thought of applying for it.     And I never considered having my dependent daughter file for stimulus.    She was sustained partly by financial aid but mostly by us.  We have claimed her as a dependent each year.     I would never allow my daughter file a fraudulent return.    She is attending Law school on a very generous scholarship  and we would not jeopardize that.  It was only in researching today that I discovered past exchanges about amending dependent status to qualify for stimulus payouts.   If you review my statement, I brought up stimulus in that context t, not in  relationship to our own past filings.      It appears from those on line exchanges  that  bad advice may have encouraged some filers  (or at best failed to warn ) to arbitrarily change both parent and dependent returns to qualify for stimulus.  It was that apparently wayward advice e that made me consider changing dependent status but only if it was harmless, which is why i asked.       Maybe such  bad advice should be scrubbed from comments or annotated with disclaimers.

[Critter-3]

@Stikman 

Don't be offended ... but the questions in this forum are answered based off the limited info in the  question you posted and that can sometimes be seen from different angles by different people  and are meant more as a cautionary warning not an accusation of wrong doing.  

[Opus 17]

---

@Stikman wrote:

Whoa! My daughter has never filed a return so she most definitely did not commit fraud.  

---

The point here is that if the child qualifies to be claimed as a dependent, they must check the box on their tax return that says "I can be claimed as a dependent by another taxpayer."  It is not mandatory for the person who could claim them to actually claim them, but the child must indicate "yes, I can be claimed."  For 2020 and 2021, if a child did not click that box, they got a stimulus payment in their own name, and that is probably tax fraud, although whether the IRS will catch anyone for it is anyone's guess.   No one's saying you did that, but it's a thing that happened.

Now as far as student loan forgiveness is concerned, no one has any idea how it will actually be administered.  It is certainly legal from an IRS point of view for you to amend your return and remove your child, if that will help your eligibility.  You aren't required to claim them even if you could.  But as you know, the student aid system has its own way of determining whether a child is a dependent and does not always rely on tax returns, so there's no way to know what will happen with the forgiveness program until they actually announce rules and print the forms.

And that's assuming the program isn't overruled by a court for being an impermissible extension of executive power not supported by the law.

[Stikman]

Thanks for the additional information.   There are still some news articles that only list the $125,000 threshold and omit the $250,000 for joint filers.   I fully agree that we have to wait this out though I suspect it will stand.  As I stated, my daughter has never filed a return so she never indicated whether she could  be claimed  on another return.   I asked the question to find the correct path.   I would much rather not file an amended return!  My response was in part to assure the community that I am not party to tax fraud. 

[Stikman]

Not so much offended as wanting to set the record straight.   When I researched "amended returns" I found quite a few exchanges from 2020 that discussed amending returns to change dependent status so as to qualify for stimulus payouts.   Never intended it to be read as me or my daughter being party to that action.   Now  I know that the child has to answer the dependency question truthfully.   However in my case my daughter has never filed.      Hypothetically if I amended my return to disclaim her then she would likley need to file a late return just so she could check that box showing she could be claimed as a depended. Now I will just wait for the loan forgiveness legislation to further develop.   

[Opus 17]

@Stikman 

If your daughter does not have any taxable income, she can’t file a tax return to just “check the box“ even if you file an amended return to, as you say, disclaim her.  If she has some taxable income, she could file a return even if it is less than the $12,550 that requires her to file.

[Stikman]

Let me thank you again.    The information you provided was clear and exactly what I needed/ 

[Stikman]

Good to know.   In any event, I see no need and have no intention to file an amended return.   I might add that as a retired, disabled veteran I  have other family  benefits based on my daughters age, student status AND dependency status.   As one example:  practically  free health care until age 23.   Any change of dependency status will be carefully evaluated  - and legal.  

Thanks again!

[NCperson]

this is the official Department of Education FAQ and information on the Relief. 

https://studentaid.gov/debt-relief-announcement/