Child 18 going to college - can file as independent?

[hminnesota]

My child is 18 and this year (fall 2022) started college (public Univ 4-year undergrad ). Her income is enough to provide half of her living expenses while away. 

We parents, have a high income enough not to get the benefit of claiming her as a dependent. 

Can she file an "independent" tax return in 2023 and we will not claim her as a dependent?

[Critter-3]

If they pay more than 1/2 of their support  with WAGES earned then she is not your dependent to claim.  Scholarships and loans do not count towards the earned income rule. 

[Hal_Al]

There are two support rules that come into play.

First, for her to be your dependent, she must not have provided more than half her own support, for the whole year.  For this rule, the support does not have to be from earned income (wages).  But, be careful about what you are calling her own support. Scholarships don't count as her own support (they are totally ignored in the support calculation). 529 plans, where you are the owner and she is the beneficiary are not her own support. Loans totally in her name are her support (you are not a co-signer). While away at school she is still considered as residing with you. 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.

Second rule: An 18 year old (or a full time unmarried student,  age 19-23), even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he supports himself by working (earned income). You cannot be supporting yourself on parental support, 529 plans, investments or student loans & grants.  

Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863

If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit.   This is worth up to $2500 (AOTC shifts to all non refundable). 

[hminnesota]

The main reason behind the question is age. 

-----Is it 18 or 19?

1. They have income from wages- W2 (not including scholarships or loans)

2. We support them with tuition but they can cover the living expense (lodging and boarding in dorm for fall 2022). 

Note- Thank you for the IRS link and  AOTC. I will read them in detail soon. 

[Hal_Al · Accepted solution]

Q. Is it 18 or 19?

A. Either, with minor differences.  In your case, it doesn't matter, the result is the same.

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.

For dependency, 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 (including high school), or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

For the refundable tuition credit, 

You don't qualify for a refundable American opportunity credit if 1 (a, b, or c), 2, and 3 below apply to you (same for 2022).

1.	You were:
	a.	Under age 18 at the end of 2021, or
	b.	Age 18 at the end of 2021 and your earned income  was less than one-half of your support, or
	c.	Over age 18 and under age 24 at the end of 2021 and a full-time student (defined later) and your earned income  was less than one-half of your support (defined later).
2.	At least one of your parents was alive at the end of 2021.
3.	You're not filing a joint return for 2021.

Q.  We support them with tuition but they can cover the living expense (lodging and boarding in dorm for fall 2022). 

A.  That's not enough. The test is support for the whole year.  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

[rjs]

Note that income is not the same as support. If she has income of $10,000 and puts it in the bank or invests it, she did not provide any of her own support. Only money that she actually spends on her own support counts as support that she provided herself.

[hminnesota]

Thank you for all the replies, especially the worksheet. 

I am glad I asked the question now with 3 months to manage the finances. 

@rjs - Understood.