college kid provides more than half of their support

[zymxhjjtm197227]

Hi when we say   "provide more than half of their support" for a college student, does this support include everything? tuition, housing, meals, car, health insurance etc? thanks

[xmasbaby0]

• What does "financially support another person" mean?

[Hal_Al]

Q. When we say   "provide more than half of their support" for a college student, does this support include everything? tuition, housing, meals, car, health insurance etc? 

A. Yes, all of those.

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, student status, a relationship test and residence test. 

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

In the case of a QC, it doesn't matter how much the person 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.

If you're not sure whether you provided more than half your own support, 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

Scholarship money is ignored in the support calculation (do not enter the scholarship amount or the expenses it paid for).  Student loans are considered as the student supporting himself, unless the parent co-signed; then it's parental support. 

In addition to all that, to qualify for the refundable portion ($1000) of the American Opportunity tuition credit, on his own return,  half of  the student support must come from working (his earned income). 

For more specific advise, provide more details of your living situation.

[zymxhjjtm197227]

thanks. Here is our situation. my kid's college expense is around 80K/year. my employer benefit pays his college tuition around 40k.  My kid's off campus expense ( summer and winter break) is around 2K. so does he need to provide more than (80K+2K)/2 or (50K+2K)/2? He has FA  needed base grant, is this amount considering as supporting himself?  

[NCperson]

@zymxhjjtm197227 - did you go through the worksheet that was provided above?  what about all the expenses you are support him with? fair share of rent at home (he is only temporarily at college), food, medical insurance car, fair share of utilities, etc, etc, etc. review the spreadsheet; he needs to overcome all that as well to get over 50%.  

is your goal to justify that he is a dependent or not a dependent and why? 

[zymxhjjtm197227]

I went through the list and the part I don't know how to enter is Education expense. His tuition is 50K, but my employer pays 40K, so do I enter 50K or 10K in education expense line? thanks

[NCperson]

@zymxhjjtm197227 - I'll state I am not the expert on this so interested in what others have to state (and i could be wrong), but the test is the EXPENSE to support your child, not the INCOME...so the expense is $50k and it just so happens that you receive INCOME to cover $40k of that.  So to me the expenses to support your child include the $50,000.....otherwise, why can't we reduce the rent, utilities, etc of support the college student by the income the parent received from any and all sources

Again, are you trying to justify that the student is or is not a dependent....if NOT a dependent, consider that most if not all of any AOTC / LLC  tax benefit may be lost.....

[zymxhjjtm197227]

thanks. your statement makes sense. he can be filed as my dependent, college student under 24 years old. what I am thinking is if he can support more than half of his expense then he can file on himself, then he can be qualified for AOC. but it seems like we cannot do that. 

[NCperson]

@zymxhjjtm197227 - just to clarify what you wrote (as it was a little confusing to me)

if he is CAN qualify as your dependent (which is the normal case), YOU are going to be eligible for AOTC.  (the way your wrote it kinda suggests you think the way to get AOTC is for the student not to be a dependent - not true)

.there are two components of AOTC - a refundable credit and a non-reundable credit

for students under age 24 who are NOT claimed by their parents to be eligible for AOTC on the student's tax return is a real challenge:

1) the non-refundable credit is worthless if the student's tax on Line 22 is zero, which it will be if he made less than $12,550 (2021)

2) the refundable credit is not available to those who a) file any status but married AND b) one parent is alive AND the student's earned income was less than half their support.   THAT is most college students. 

So the AOTC program benefits motivate the parent to claim the student and capture the AOTC benefit.   Your post seemed to indicate you think it's the other way around.  And it may be you income level is high and it means you are not eligible for AOTC and you were trying to see if there was a way to get your student to capture the benefit. 

[Carl]

what I am thinking is if he can support more than half of his expense then he can file on himself, then he can be qualified for AOC. but it seems like we cannot do that.

I sense some misunderstanding of the rules here. First, understand that all third party income received by the student does not count for the student providing their own support. This includes, and is not limited to scholarships, grants, 529 distributions, money from mom and dad, gift from Aunt Mary, etc. The requirement is that the student (not the parent) provide more than half of their own support. There are only two possible ways the student can do that.

1) The student is self-employed or has a W-2 job and earns sufficient money to justify a claim of providing more than half of their own support. Additionally, that earned money must be more than the total of all third party income received in the same tax year.

2) The student (not the parent) is the primary borrower on a qualified student loan, and sufficient funds are distributed from that loan during the tax year to justify a claim of the student providing more than half of their own support. Additionally, the total funds distributed to the student during the tax year must be more than the total of all third party income received.

Finally, some parents are of the mistaken belief that they have to pay more than 50% of the students support. That's just not so. There is no requirement for the parents to provide the student any support. Not one single penny. The support requirement is on the student, and only the student.

[zymxhjjtm197227]

Hi, your last paragraph is the answer. Our (parents) income is too high to claim the AOCT.  I am trying to see if there is a way for my kid to get it.

[NCperson]

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@zymxhjjtm197227 wrote:

Hi, your last paragraph is the answer. Our (parents) income is too high to claim the AOCT.  I am trying to see if there is a way for my kid to get it.

Yeah, the IRS is coniving and one step ahead of all of us..... hence, it is quite challenging for the student to capture AOTC when the parent's income is too high.   You could a) encourage your child to get married OR b) execute an unthinkable act/pact with your spouse..... then the child would be AOTC eligible.    I would have also suggested the student 'shooting the moon' on bitcoin but that opportunity appears to be behind us for the time being. 😊 

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[Hal_Al]

 Technically there is a provision that allows your student-dependent to claim a federal tuition credit. But,  from a practical matter it seldom works out.  As previously stated an unmarried student, under age 24 (except orphans), is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he/she supports himself by working. She cannot be supporting herself on savings, student loans & grants, parent's employer tuition plan,  and 529 plans and parental support.  

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.  The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500, if the student has that much tax liability (AOTC shifts to all non refundable).