Do I have to add a dependant if he is a 22 year old college student? It costs me money to add him because his small paycheck was not included on my healthcare.

[xmasbaby0]

You are not required to claim a dependent but if your dependent files their own tax return, the dependent is required to say on their own return that they can be claimed as a dependent on someone else's tax return.

Not sure why you think his paycheck would cost you money.  You do not put your dependent's income on your own tax return.  His income only goes on his OWN tax return.

MY DEPENDENT HAD A JOB

If your dependent has a W-2 for his after-school job, summer job, etc. you do not include the information on your own return. You can still claim your child as a dependent on your own return.  He/she can file his own return for a refund of some of his withheld wages (he won’t get back anything for Social Security or Medicare), but MUST indicate on it that he can be claimed as a dependent on someone else’s return.  (Supervise this closely or prepare it for him!)

If your dependent’s earnings were over $400 and were reported on a 1099Misc or 1099NEC then he must file a return and pay self-employment tax for Social Security and Medicare.

You might also want to use free software from the IRS Free File versions:

https://apps.irs.gov/app/freeFile/

[NCperson]

@melissaalford111 - you are NEVER required to add a dependent.  It a person qualifies as a dependent, it is an opton you have.  (thhe IRS would rather you not add the dependent since they won't have to pay out the credit😀)

but you may be 'shooting yourself in the foot". 

can you please explan the 'his small paycheck was not included in my healthcare' statement?  is this Marketplace medical insurance? His earnings normally have no bearing on your Marketplace premiums. How much did he earn?  

If your child is in college, what did you (he) do with Form 1098-T?  That could give you the opportunity to receive a tax credit of up to $2500.  but you have to claim him to take advantage of this tax credit. 

By claiming him, you are eligible for up to a $500 tax credit.  

So there may be up to $3000 of tax credits available and no ramifications to Marketplace, depending on your responses. 

[Mike9241]

all this assumes he was not covered under your Marketplace Health Insurance. what may be happening.  including him as a dependent requires that his modified AGI be included in household income unless he is not required to file a return but filing only to claim a refund of withheld income tax or estimated tax.  Otherwise, including his income would likely lower the subsidy you were entitled to vs what you got.

What we don't know because we have no data is the effect of including him vs not.  there may be loss of various tax credits that would more than offset any increase in repayment of the health care subsidy.  if you are not married, then without another dependent your filing status would be single vs head of household which would also increase your taxes.

the only way to tell which is best is to do 2 computations. one including him and then one that does not. then compare lines 34 and 37

if both show an amount on line 34 it would likely be best choosing the one with the larger refund

if both show an amount on line 37 it would likely be best choosing the one with the smallest amount due

if one has an amount on line 34 and the other on line 37 it would be best choosing the one with an amount on line 34

now if your son was covered under your Marketplace policy, there are numerous possibilities because of the very liberal rules for allocating policy amounts. in addition, your son would have to file a return,

[melissaalford111]

Thank you! Yes, I included his income in the AGI but he was not covered under my healthcare plan. The way it read I thought I had to include him regardless. When I did that I ended up paying taxes instead of receiving a refund. He filed his own taxes.

[NCperson]

@melissaalford111  his income is NOT to be listed on YOUR income tax return. is that why you don't want to claim him????????

did you take advantage of the American Opportunities Credit for college students? you may be missing out on that as well

[Opus 17]

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@melissaalford111 wrote:

Thank you! Yes, I included his income in the AGI but he was not covered under my healthcare plan. The way it read I thought I had to include him regardless. When I did that I ended up paying taxes instead of receiving a refund. He filed his own taxes.

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No. You may want to file an amended return (or, if you have not filed yet, correct the error and make sure you understand all the prior answers before filing.)

1. You are never required to claim a dependent.

2. If a person (your child) qualifies to be claimed as a dependent, that person must answer "Yes, I can be claimed as a dependent", even if they don't want to be claimed and even if the person who could claim them, won't claim them.

3. A dependent's income earned from working is never included on a parent's tax return in any form (at the federal level). 

3a. Note that there may be state credits based on the income of all the people in the "household", and your child's income might be includable for figuring the credit even though it is not part of your taxable income for income taxes.

3b. The only time a parent might include a child's income on the parent's return is if the child is under 18, or under 24 and a full time student, and their only income is interest and dividends from investments.  If the child has any other kind of income (working, prizes, scholarships, capital gains) then all the child's income is reported on a return in the child's name only.)

4. You may qualify for an education credit if you claim your child as a dependent and enter their 1098-T on your tax return.  Children under age 24 can't get this credit unless they are living independently with an income over $20,000 or they are orphans.  

5. Your son's income does not count as part of your income for the affordable care act subsidy. 

[NCperson]

@Opus 17 - on #4,  it's even narrower than written for AOTC; LLC is a different matter

Students are not eligibile for the refundable portion of AOTC if a) they are under 24 and not living independently AND B ) they are not orphans (either parent is alive)  AND c) they file other than MFJ.  ... so 8 permulatations and  7 of then maintain eligibility for the refundable portion of AOTC.... assuming they are not claimed as a dependent by someone else (otherwise, no eligibility).- the 'can be claimed' doesn't matter in this case. 

Not sure where the $20,000 comes from.  If there is a tax liability, there is eligibility for both the non-refundable portion of AOTC as well as LLC.  (assuming not claimed by someone else). 

[Opus 17]

@NCperson 

$20,000 is a rough calculation for purposes of illustration. If the student has $20,000 of income, they would owe about $700 of income tax (10% bracket after standard deduction) and could qualify for a $700 AOTC in their own name.  To benefit from the full $2500 AOTC, a single student would need about $33,000 of income earned from working.  

The conditions to receive the refundable AOTC without earned income are quite restrictive as you point out.  

Which is why it is almost always more beneficial for the parent to claim the child as a dependent and claim the AOTC on the parents return.  

[NCperson]

@opus - one comment: 

Whether or not the student has  earned income, the rules are quite restrictive and most students are not going to qualify for the refundable AOTC credit.  What the IRS did in effect was eliminate the typical college student - under 24, not married, at least one parent living,etc. - from refundable credit eligibility.

This is the unique case where a someone can state they CAN BE claimed by someone else (even though no one actually claimed them) and still be eligible for AOTC.

Parents who have income exceeding $180,000 are not eligible for AOTC.  I've always believed the restrictive rules for students is so that a parent who earns more than $180,000 doesn't decide to forego claiming their child (and forego the $500 dependent credit) so that their child/ student can pick up the $1,000 refundable AOTC credit.   The student could still pick up the non-refundable credit (max $1500), depending on their tax liability. 

[Opus 17]

@NCperson 

I guess I was imprecise in my language.  A student with more than $33,000 of income would qualify for the full nonrefundable credit because their tax would exceed the credit.  With less than $33,000, they would qualify for a nonrefundable credit up to the amount of their tax owed. The refundable portion of the credit is restrictive as you indicate.

And yes, regarding your second point, there are some circumstances where a parent’s income is so high that they don’t qualify for the AOTC, and having the student claim the credit will give something, even if not the full amount.  That’s why there are two dependent questions on the student‘s tax return:

1. Can you be claimed as a dependent on someone else’s tax return?
2. Will the person who could claim you actually claim you this year?

The reason for the second question is that if the parent can’t claim the AOTC, the student may be able to claim the credit if they answer no to the second question, even if they are required to answer yes to the first question.  However, because the original tax payer here was claiming the affordable care subsidy, I don’t think they are in the situation where the parent‘s income bars them from the AOTC, so I didn’t mention it originally.