Can my parents claim me as a dependent? I am a 22 year old full time college student who received around $10,000 in gross income (summer job + taxable scholarship money).

[katie-s-campbell]

I have heard there is a rule that dependents must make less than $4000 in gross income. Does this apply to child dependents who are full time students?

[Carl]

There is NO income limits for a college student to qualify as a dependent on their parent's tax return. The student could earn a million dollars, and still qualify to be claimed as a dependent on their parent's tax return. Please read all of the below. It does apply to you and your parents.

• College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

If the student:

Is under the age of 24 on Dec 31 of the tax year and:

Is enrolled in an undergraduate program at an accredited institution and:

Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a half time student) and:

the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

Then:

The parents will claim the student as a dependent on the parent's tax return and:

The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent, then:

The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option ieven f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Now here’s some additional information that may or may not affect who files the 1098-T. If the amount of scholarships/grants exceeds the amount of qualified education expenses, the parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

 If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6200, then the student should file a tax return so as to get those withheld taxes refunded.

• 1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Next, 520/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over that are taxable, then while the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

[katie-s-campbell]

Thank you! So, basically:
1. My parents can claim me as their dependent regardless of how much money I make as long as I am under 24 by the end of the tax year, a full time student at an accredited school, and I did not pay more than 50% of my own expenses.
2. I do not even need to worry about filing if my income was less than $6200 unless taxes were withheld and I want a refund.

Is this correct?

Also, since my scholarship covered all expenses, how do I deal with the "paying less than 50% of my expenses" in this case?  Technically does this mean I paid all of my expenses, so my parents cannot claim me?

[Carl]

No. Scholarship money is not support provided by "YOU". It's support provided by a 3rd party. that 3rd party is whoever provided the scholarship. Therefore, you yourself did not provide more than 50% of your own support. Therefore, your parent's qualify to claim you as a dependent. Note also that there is no requirement for your parents to provide any support. Note one penny. The support requirement is on you.
For you, there are three possible sources of taxable income.
 1 - excess scholarships, grants and 1099-Q funds that were not used for *qualified* education expenses
 2 - A job you could have worked in 2015 either during the summer or on weekends during school, and the income from that job is reported to you on a W-2.
 3 - Other work that you did and were paid for, that the IRS would consider to be self-employment income.

If item #3 was your only source of taxable income in 2015, and if it was more than $400, then you are required to file a tax return and you will pay at least the Self-employment taxes on that self-employment income. SE tax is basically the employer side of your social security and Medicare.

If the total of all three items added together comes to more than $6200, then you are required to file a tax return.

If you held a W-2 job and "ANY" taxes were withheld from that pay by your employer, then even if the amount you earned was less than $6200, you *should* file a tax return so you can get those withheld taxes refunded to you. Note that only the FICA withheld is refunded. The Medicare an Social Security payments are not refunded.

[katie-s-campbell]

I don't think I phrased my second question correctly. I meant to say that my excess scholarship money paid for other expenses outside of education expenses. My total in excess scholarships and summer job money was more than $6200. I used this to pay for things like clothing, my dorm, food, etc. My parents did not pay for more than 50% of these expenses. I would say I paid for 80-90% of them myself.

This is my first time filing taxes because it's the first time I've had a summer job, so this is all very confusing to me. I think my parents may have claimed me as a dependent incorrectly, though, because of this 50% rule. What do you think?

[Hal_Al]

Your parents were correct in claiming you as a dependent. Because you are under age 24, you parent do NOT have to pay more than 50% of your expenses. The support rule for full time students,under 24, is only that they didn't provide more than half their own support. Scholarships, even those that exceed tuition, fees & books, is not your money for the support test. You cannot say you paid for 80-90% yourself, if you are counting scholarships.

The less than $4000 in gross income test does not apply  to child dependents who are full time students. The support test is separate from the income test.

There is a $6200 ($6300 for 2015) rule, but it, too, is separate from the support test. There is a rule that says IF somebody else CAN claim YOU as a dependent, You are not allowed to claim your own exemption. If you have  sufficient income (usually more than $6300),  you can & should still file taxes, you just don’t get your own $4000 exemption (deduction). In TurboTax, you indicate that somebody else can claim you as a dependent.

One more thing; there's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit.

[Carl]

Here's the thing. "Your Support" includes your qualified education expenses. Those were not paid by you. They were paid with scholarship money. Any scholarship money not used for qualified education expenses, was used for "your support" for those other expenses. Again, it was not "your" "earned" income that you spent for those expenses. It was taxed scholarship income provided to you by a 3rd party. You can only support yourself with money that you physically earned in the same tax year that you used it to support yourself. I seriously doubt you earned enough money at a 3 month summer job, to support yourself with for an entire year. Most likely, your earned income alone is not more than 50% of the total money you received in the tax year. So there's no way you could have provided more than 50% of your own support.

[Hal_Al]

Yes, they can still claim you (most likely). The $4000 rule doesn't apply because of your age and student status.

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.

A child of a taxpayer can still be a Qualifying Child dependent, regardless of his/her income, if:

1. 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

2. He did not provide more than 1/2 his own support. Scholarships are considered third party support and not as support provided by the student. 

3. He lived with the parent (including temporary absences such as away at school) for more than half the year

 A person can still be a Qualifying relative dependent, if not a Qualifying Child, if he meets the 6 tests for claiming a dependent:

1. Closely Related OR live with you ALL year

2. His/her gross taxable income for the year must be less than $4,000 (2015)

3. You must have provided more than 1/2 his support. Note the difference from the support test for a QC. If he's older than 23,  scholarships  are support the parent did not provide.

In either case:

4. He must be a US citizen or resident of the US, Canada or Mexico

5. He must not file a joint return with his spouse or be claiming a dependent of his own

6. He must not be the qualifying child of another taxpayer

[Kawasaki750LTD]

How does the IRS request info from student that claims they didn't use their money towards school. Example, student makes $16000 is a full time student and only has $3000 in a savings, but me parent are helping with college. How does student prove they didn't use money for support? What is the term money used on other items? This is very confusing.  

[Hal_Al]

@Kawasaki750LTD 

You don't have to prove anything, unless you are "audited".

Why are you asking?  That is,  what are you trying to accomplish?  Prove to your parents that they are not allowed to claim you?  Get the stimulus check? Claim the tuition credit?

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf The support value of a home is the fair market rental value, divided by the number of occupants.

I don't see the term "money used on other items" on that sheet. 

________________________________________________________________________

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. 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
2. He did not provide more than 1/2 his own support. Scholarships are considered third party support and not as support provided by the student.
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

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.

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12,200), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.  TT will check that box on form 1040.

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

With the tax law change, effective 2018, most students will get the same refund whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased.

[Kawasaki750LTD]

Appreciate your response, actually I'm just trying to not get in trouble with the IRS or my parents.   This is it in a nut shell, I earned 16,000 with part time jobs. I'm a full time student. My parents help me out. I don't have much in savings but I'm not sure that I have provided more than 50% my share. My parents are claiming me and that's totally fine,(not worried about any stimulus check)  Its just so confusing to me and my parents. They stand to loose roughly $700 by not claiming me. Me I fill out my taxes and nothing changes regardless if I  go claimed or unclaimed.     I just don't want the IRS coming back and wanting me or my parents to come up with receipts on proving this 50% support. Seriously who keeps every receipt and breaks it down. At least the common tax payer. Any suggestions would help. My parents are just tempted to loose the $700 and not claim me to be on the safe side.  

[Hal_Al]

Bottom line: "every" full time student under 24 is claimed by his parents, because it's usually the smart thing to do.  

But, if you're concerned with being technically in compliance, the support work sheet "is the thing".  It is what the IRS will ask for (in the unlikely case that they ask at all).  Most people just use estimates (or these days accounting software like Quicken) and not receipts. 

I'm surprised at your low $700 estimate of what you parents will lose.  The American Opportunity tuition credit (AOTC)*, alone,  is $1000+.  

The interesting thing is that if you tried to claim that $1000, it would be a red flag to the IRS (assuming you're  an undergrad, under age 24). So, there is less chance of an audit if your parents claim you, rather than you claiming yourself and the tuition credit. 

*A full time unmarried student, under age 24, is only eligible for the refundable portion (up to $1000) of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit. 

You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.

[Kawasaki750LTD]

Thank You. Appreciate again your input!

[Accountant01]

This has been most helpful.  I  have a little bit of a twist to the scenario.  Parents income too high to take advantage of dependent or education. It is close regarding if child 1 can be claimed by themselves or parents.  The worksheet you provided was most helpful. I'll let client decide which way they want to go with that.

Regarding 1099-Q, parents made payment from younger Child 2's 529 directly to Child 1's college. Beneficiary, is Child 2, and 1099-Q social listed under Child 2.  Since the distribution was not used by the beneficiary (Child 2), the earnings are now taxable, and a 10% penalty is owed, correct?  Whose tax return reports the income?  Child 2, or the parents? If Child 2 reports it, then Kiddie Tax kicks in.

If Child 1 is claiming themselves and parent doesn't claim them as a dependent, then Child 1 can use the 1098-T education expenses on their return, instead of parents, correct?  If parents claim Child 1, then the parents would include the 1098-T education expenses on their return, correct?

[Carl]

Just a note here. The parent's income being to high has absolutely nothing to do with the student qualifying as their dependent. So if the student qualifies to be claimed as a dependent on the parents' tax return, they qualify. Period.  That means the parent's do have a choice to claim the student as their dependent, or not. However, the student does not have a choice and must select the option to indicate they can be claimed on another tax return.