I am trying to determine what the impact will be of claiming my daughter as a dependent vs not claiming her as a dependent

[tbduvall]

I am trying to determine what the impact will be of claiming my daughter as a dependent vs not claiming her as a dependent.  It makes a big difference regarding what size of a subsidy I receive from the Health insurance marketplace - with increased monthly premiums and much larger deductibles, it will amount to about 10K more out of our pockets, when we include her as a dependent with her 20K income. 

With so many modules in Turbo Tax Deluxe unfinished due to pending tax law updates, I am finding it very difficult to determine how not including her as a dependent in 2022 will affect my federal and state payments/refunds on my taxes.  Can anyone help with this?  

[xmasbaby0]

Please provide some more details about your daughter.   How old will she be at the end of 2022?   Has she been a full-time student in 2022?

[VolvoGirl]

How old is she?  Is she a full time student?  Since she has 20,000 income you can't claim her unless she is under 19 or a full time student under 24.  If you can claim her but don't, she still has to say on her return that she can be claimed on your return.  

[VolvoGirl]

And if you claim her you do not report her income on your return.  She has to file her own return for it.  Unless she only gets Social Security.  What kind of income does she have?  W2 or 1099 or investments?

[tbduvall]

She is 18 and will be 19 in March 2023.  She graduated in May 2022 and is taking a gap year before college.  Her wages are reported on a W-2.

I understand that if I claim her on my return that I do not report her income, but I imagine that there will be credits that we will lose if we don't claim her, and I don't know what changes there will be post covid. I haven't studied up on changes yet.

I tried taking her out of 2021 to get an idea, but there were advanced childcare tax credits, and a lot of things that were different than 2020.  It swung us from a 2300.00 refund to a payment of 2400.00.  That seems too severe.  I must have missed adjusting something.  Post pandemic, I don't know what to expect.

[xmasbaby0]

If your daughter will still be 18 at the end of 2022 you can certainly still claim her as a dependent on your 2022 tax return no matter how much she earned.  You will not get the child tax credit for 2022.  The CTC had special criteria for 2021 returns only; for 2022 if she is older than 16 you do not get that credit.  Instead you will get the $500 credit for other dependents which will lower your tax liability.   That credit is not a refundable credit.

https://ttlc.intuit.com/questions/4499708-what-is-the-500-credit-for-other-dependents-family-tax-cre...

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/

At age 18 she is still a qualifying child dependent for you.

WHO CAN I CLAIM AS A DEPENDENT?

You can claim a child, relative, friend, or fiancé (etc.) as a dependent on your 2022 taxes as long as they meet the following requirements:

Qualifying child

• They're related to you.
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They're under the age of 19 (or 24 for full-time students).
• No age limit for permanently and totally disabled children.
• They lived with you for more than half the year (exceptions apply).
• They didn't provide more than half of their own support for the year.

Qualifying relative

• They don't have to be related to you (despite the name).
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They lived with you the entire year (exceptions apply).
• They made less than $4,400 in 20222.
• You provided more than half of their financial support.

When you add someone as a dependent, we'll ask a series of questions to make sure you can claim them. There may be other tax benefits you can get when you claim a dependent.

[xmasbaby0]

@tbduvall For planning purposes for you----if she is not a full-time student in 2023, ("she is taking a gap year") then you will NOT be able to claim her as a dependent next year when you file a 2023 tax return unless she earns too little (less than $4500) in 2023.

[tbduvall]

I'm sorry that I wasn't more clear.  Her income this year is about $7000.  HIM is based on what she expects to make in 2023 (20K), and also depends on whether we will claim her as a dependent.  That's what led to my question about the tax impact of not claiming her (assuming we could).

Thank you . . . this helps.  I wanted to make sure that losing the Child Tax Credit was likely to be the only thing to consider.  So, assuming everything else is the same as last year, we will just have a tax burden that is about $2,000 higher, correct?

That's definitely better than a 10K hit on health insurance marketplace coverage.

Will not being claimed make any difference on her taxes this year (she filed her own last year as a dependent)?

[tbduvall]

Thanks.

[TomD8]

"Will not being claimed make any difference on her taxes this year (she filed her own last year as a dependent)?"

No, because she must indicate on her own return that she can be claimed as a dependent on someone else's return, regardless of whether or not you actually claim her.

[NCperson]

@tbduvall - I'd like to summarize to make sure everyone is on the same page - 

for 2022,  a difference would be the "Other Dependent Credit".   if you claim her, that is worth a $500 tax credit that you'd lose if you otherwise decide NOT to claim her.  Whether you claim her or not is your option; the IRS doesn't care.  HOWEVER, on her tax return, she has to click the button indicating she CAN be claimed - her response is the same regardless of which option you take on your tax return.  You can't take the 'Child Tax credit' because she is over 16 years old. 

for 2023, if she takes a gap year and earns more than $4400, she can NOT be your dependent. There is no option here; she simply doesn't qualify to be your dependent.   (if she is back in school in 2024 full time she can again be your dependent for tax purposes. )