Parents say they should have gotten my student tax credit

[cbricker2012]

I was 19 and a full-time college student. I paid for 100% of college and life expenses. I worked part-time and made around $10,000 a year. I lived on my own. The only money I received from them was for my birthday or Christmas, but was never over $100.00. They tried to claim me as a dependent and claim my student tax credit. I filed as an independent and got the credit. My parents say it was their credit and I took it away from them. Did I file correctly? *note* I took out student loans in my name to pay for tuition and books. Nothing was payed for by anyone else. I was a waitress and one year I made 12,000 one year I made $9,000. 

[Critter]

If you pay for more than 1/2 of your living expenses with income from working then you are no longer their dependent so they are incorrect.

[Carl]

The ***STUDENT*** (not the parents) must not have provided more than 50% of their own support. Support does not include scholarships, grants, 1099-Q funds, gifts from Aunt Mary, etc. The student must of provided more than 50% of their own support with money that student earned in the same tax year. So there's no way you the student qualify for the self-exemption.

Note also that the support requirement is on the student, not the parent. There is absolutely no requirement for the parent to provide any support - not one single penny. Note also that there is no requirement for the parents to claim the student as their dependent either. The rules say that if the parents just ***qualify*** to claim the student, then the student can not take the self-exemption. The student must select the option for "I can be claimed on someone else's tax return". It doesn't matter if the student is claimed or not, on the parents tax return.

So if you only earned $9K for the tax year, there's no way you provided more than 50% of your own support, and your parents not only qualify to claim you, they also claim all the education credits and tax breaks, regardless of who paid the qualified education expenses.
Note that determining who can claim you as a dependent and who claims the education credits are two different and unrelated determinations. The fact your parents qualify to claim you as a dependent is covered in  IRS Publication 17 at <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p17.pdf">https://www.irs.gov/pub/irs-pdf/p17.pdf</a>  Specifically page 27, "qualifying child".
Who claims the education credits is covered in fine detail in IRS Publication 970 at <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p970.pdf">https://www.irs.gov/pub/irs-pdf/p970.pdf</a>.

[cbricker2012]

I paid for 100% of my income and all school expensies. My rent was only $250 a month for a tiny studio apartment. I took out student loans to pay for school and books. I am paying back my students loans 100% myself. I am the only person who payed for anything.

[Carl]

Thanks for clarifying. The loans make a difference, provide you are the primary borrower on the loan. There's two things that matter here.
First, understand that borrowed money is not *your* money. It never was, isn't now, and never will be. The borrowed money must also be of sufficient amount for the tax year for you to have paid more than 50% of your own support. For example, lets say your tuition for the year was $5K, rent/utilities for the year was $15K. That comes to $21K spent on "support".
However, you received $15K in scholarships/grants, 1099-Q funds and gifts. The IRS applies that money first to your tuition and support. That's more than half of your support provided by third parties, and not you or your parents. So your parents qualify to claim you even if you took out a $100K loan.
Now if you do qualify for the self-exemption as well as qualify to claim the education credits, the credits you claim and are allowed to deduct from your taxable income can not exceed your tax liability on *your* *earned* *taxable* income. Keep in mind that borrowed money is not your money, and therefore *you* don't pay taxes on it. Ever.
In the future, if the loan is a *qualified student loan*, then in the tax year you start paying it back you'll receive a 1098-E reporting the interest you paid in that tax year. You will be able to claim and deduct from your taxable income, the interest you paid on the loan, provided you have the taxable income to deduct it from of course.
It's also important to note what counts as support too. For example, using your money to pay for a spring break Caribbean vacation is not support. Neither is using your money to buy a new car; especially if other means of transportation to/from work/school are available to you, such as a local bus service. When enrolled in college as a full time student, the IRS considers you a student first, above all else - even if you work full time.

[Opus 17]

@Carl  money borrowed by the student in the student's name that the student has to pay back is considered support provided by the student.   (You may be thinking of scholarships. Scholarships are not support provided by the student.)  See example 2 on page 20 of publication 501.  Also see line 1 of worksheet 2.

 This taxpayer may also qualify under the residency rule.

[Carl]

Thanks for clarifying that Opus 17. The point I was trying to make is that if say, $21K is spent on support for the year (including tuition) and more than half of that $21K is from scholarships, grants, 1099-Q funds and the like, then the student still did not provide more than 50% of their own support, regardless of the amount borrowed by the student, in the student's name. For @cbricker2012 you can get the support worksheets if you like at <a rel="nofollow" target="_blank" href="https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf...> if you want to work them through just to be sure you're right. That way if you're ever audited on this, you can pull the worksheets to "show your work" so-to-speak, to the IRS.

[Opus 17]

Scholarships aren't taken into account for qualifying child support test.  

"Scholarships. A scholarship received by a child who is a student isn't taken into account in determining whether the child provided more than half of his or her own support."

So if, for example, the student earned $10,000; and took out a $10,000 loan, and received a $25,000 scholarship; their "support provided" was $20,000 and their "support costs" were also $20,000.  The child provided more than half their own support.

Page 15 and page 21.

[Critter]

@cbricker2012   my original answer still stands ... you are correct.

[Carl]

Opus 17, was reading through the support worksheets while you were posting, and just saw that for myself. Was getting ready to post what you already beat me to. 🙂

[Opus 17]

Your parents get the credit if they can claim you as a dependent.  Otherwise you get the credit.

Your parents can claim your as a dependent if you did not provide more than half your own support (no matter who provided the rest) and if you lived with them more than half the year.

For support, see publication 501 table 2.  Support you provide yourself includes money you earned, money you take from your savings, and loans you borrow in your own name.  Scholarships are not support provided by you but are not counted as support provided by anyone else, either.  Support provided by your parents includes any money they provide, plus the rental value of the home they provide you, utilities, food, etc.  (If there are 4 people living at home they can count 1/4 the food utilities and other household expenses as support provided to you.) 

You would need to add up the support provided by you (earnings, loans) and add up your total support needs (food, rent, travel, tuition, etc.)  If you provide more than half your own support, they can't claim you as a dependent.

If you did not provide more than half your own support then you need to look at the residency test.  You meet the residency test if you lived with your parents more than half the year.  You are deemed to live with your parents even when you are away for a temporary absence (college is a temporary absence) if you would have lived with your parents if not for the absence.  There is no black letter rule that determines when a college student is living on their own and when they are living "with" their parents but temporarily absent.  It depends on the individual facts.  For example, do your parents keep a room for you, is your stuff there until you move out permanently, do you go home for vacations and summers.  Or have you legitimately moved out of your parent's home and no longer are simply "temporarily absent."

(Note how these tests would work in your freshman vs later years.  Even if you move out and pay all your own bills from the first day of school, you lived with your parents for 8 months, and they get credit for 8 months of living expenses in their home, so they probably qualify to claim you as a dependent.  In later years, it becomes easier to be no longer a dependent.  But you still have to consider the residency and support tests for each year.)

If you believe your parents do not meet the support test (because you provided more than half your own support), or if you believe your parents do not meet the residency test (because you did not live with them more than half the year) then they can't claim you as a dependent.  You don't need to change anything.  If they want to claim you, they can try, but the IRS will investigate both your financial and living arrangements.

See here for more https://www.irs.gov/forms-pubs/about-publication-501

[Carl]

Yean, that "lived with the parents" tends to get a bit grey after the freshman year. I've seen cases where a college student was basically "thrown out" of the household and the parents refused to provide any help at all. However come tax time, the parents qualified to claim the student, did claim the student and all the education tax credits, and because of the rules, the student couldn't do anything about it. In cases such as this, when the student is audited years later, they end up paying back credits, plus fines, penalties, and interest. It's not right, but it's the law. In my younger years, I thought laws were meant to be morally right. Nowadays I know it's not the truth that matters... it's what you can prove in a court of law that matters, truth or not.

[cbricker2012]

Okay, so I pulled up my tax returns from a few yeas ago. I claimed $16,500 a year. I was a bit off going from memory. I recieved $5,000 a school year for student loans. I went to school for 2.5 years. I recieieved 0 scolarships and did not live at home or with anyone the whole time I was a student. Again, I 100% supported my living expensies, bills, rent, gas. I payed my tuitiom with loan money in my name. My question is, who should have gotten the tax break?

[Carl]

YOu do, hands down, based on the information provided. Most likely you have the means to prove it too, if you're ever audited. (loan papers, rental contracts, tuition payment receipts, etc.)