Re: Claim college student or file on her own?
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New Member

Claim college student or file on her own?

Im a single parent with one 19 year old full time student.  She arns $3000 /year.  Is it better for her to file taxes on her own (she dodsng owe any, but is she eligible for the earned income tax credit?

 

I would be a singld status filer in that case instead of head of household.  

 

Thank you.

4 Replies
Level 15

Claim college student or file on her own?

Please read all of the below, and let me point out a few facts.

 - What the college student earns is irrelevant. They could earn a million dollars and still qualify as your dependent.

 - There is no requirement for the parent to provide the student any support. *Not* *one* *single* * penny*. The support requirement is on the student, and only the student. That requirement is:

If the STUDENT does NOT provide MORE than 50% of the STUDENTS OWN SUPPORT then the parents qualify to claim the student as a dependent on the parent's tax return.

Now scholarships, grants, 529 funds, gifts from Aunt Mary, etc ***do not count*** for the student providing their own support. There are only two possible ways the student can provide more than 50% of their own support

1. The student as a W-2 job or is self-employed and has sufficient *taxable* income to provide more than 50% of their own support.

2) the student is the *primary* borrower on a qualified student *AND* a suffient amount of that loan is distributed to the student in that tax year, for the student to provide more than 50% of their own support.

Now even with those two items above, it is still possible that no matter what the student does, it's just physically impossible for them to provide more than 50% of their own support. Example:

First, define "support".

The IRS defines support for a college student as

 a) Tution, to include books and lab fees

 b) Housing, to include the cost of utilities

 c) Food

 d) Clothing

 e) Transportation

So with the above, if the student spends $3000 on that Caribbean cruse over spring break and another $5000 on that trip to Vegas over the summer break, not one single penny of that is support. These examples would be classified as entertainment, and has absolutely nothing to do with support, any way you look at it.

So lets look at some real world costs here for student support for the first year the student is in college.

Remember, colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes 5 calendar years to get that 4 year degree. So for the first year that student was in high school at the start and/or lived at home with mom and dad and the parents' provided 100% of the student's support.

In August the student left home to attend college in another state. For August through December the following support expenses were incurred by the student.

- Housing (on campus, so included utilities) $6000

- Food plan at $2000 for the first semester. $2000

- Clothing..........................................................$500

- Tuition.............................................................$5000 (and that would be "EXTREMELY" high for most)

- Transportation................................................$0 (Student lives on campus. There are no transportation expenses that can be justified.)

- Total................................................................$13,500 (Keep in mind this is for only one semester, and NOT the entire tax year.)

 

Now lets look at the student's income.

Scholarships/grants.....................................$5000

529/Coverdell funds....................................$6000

Student had a job and earned money.......$50,000

 

Now just looking at that one semester, the IRS considers unearned income received by the student or on behalf of the student as "3rd party support" and that gets applied first. So the scholarships, grants and 529 funds total $13,000. With the total "qualified" support expenses of $13,500 for the semester, there is no way possible that the student can claim they provided more than 50% of their own support. Add to that the fact that mom and did provided 100% of the students support for the first 8 months of the year, and the student is nowhere close and physically can't even get close to claiming they provided more than half of their support. So there's no need to continue this example any further. The parents qualify to claim the student as a dependent on the parent's return.

 

Now with the above, the key word here is *QUALIFY*. To rephrase, the parents' *QUALIFY* to claim the student as a dependent. Now the parents don't have to claim the student. But since they qualify to claim the student, even if the parents don't claim the student, under no circumstances can the student claim they are independent.

Now for the writeup/interpretation of IRS Publication 970 - Education Expenses

  • College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

Now there are two separate determinations to be made here.

  • Who claims the student as a dependent.

Who reports all the education expenses and claims all the education credits.First, who claims the student as a dependent?Is under the age of 24 on Dec 31 of the tax year and:Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:Then:If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.Who reports all the education expenses and claims all the credits?The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:If the student will be filing a tax return and:The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return..If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses, then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.) Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6350, then the student doesn’t even need to file a tax return, and nothing has to be reported.Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6350, then the student should file a tax return so as to get those withheld taxes refunded.

1099-Q Funds

  •  
  • If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.
  • In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.
  •  
  •  
  • The parents qualify to claim the student as a dependent, then:
  • The parents will claim all educational tax credits that qualify.
  • If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:
  •  
  • The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”. To reiterate:
  • the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)
  • Is enrolled in an undergraduate program at an accredited institution and:
  • If the student:
  •  

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred as follows depending on what type of 1040 you’re riling.

1040-EZ excess scholarship income is included on line 1. 1040-A excess scholarship is included on line 7. 1040 Excess scholarhip is included on line 7.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred as indicated above with one exception. For the 1040 excess ESA/QTP funds get transferred to line 21 with the annotation “SCH” next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

 

 

Level 6

Claim college student or file on her own?

I'll try to keep this part short. I assume your child is not married and has no children and nobody other than you can claim her as a dependent. Because you didn't mention scholarships, I will assume scholarships are not significant to this situation. (Your case is simple if my assumptions are OK.  But if you have scholarships, then it can be a little more complicated. ) 

 

First, if your child has $3000 for her income, then it would be common for the employer to have withheld some amount of money for federal or state tax.  Therefore, your child should file her own return to get a refund for any withholdings.  If $3000 is her total income, she will file Single, and there should be no tax with that income level.  When your child completes her return, she files Single, and she needs to mark her return to note that she can be claimed as a dependent on someone else's return.  That is not a choice.  She must mark it that way because you "can" claim her as a dependent.  [You do have a choice to not claim her (however, then nobody claims her), but that choice makes no sense for you.]  And forget talk about Earned Income Credit because it does not apply for her at any income level because without a child, the age for EITC must be at least age 25 and under 65.  Quit thinking about EITC for her.  Her job is to get her education.

 

Finally for your own return, your child should remain your dependent. (I am assuming nobody else provides over half of her support). If you otherwise qualify for Head of Household, then file that way.  As Head of Household, you get an $18000 standard deduction instead of the $12000 for filing Single. Finally, please become familiar with the American Opportunities Tax Credit (AOTC) for her education.  If AOTC applies, then that credit goes on your tax return when she is your dependent, and that credit might get you as much as an additional $2500 of extra refund. You  will need your daughter's 1098-T, her school financial statement (to know in which years things get paid), and records for applicable expenses.  TurboTax should walk you through the steps. Read questions carefully.

Level 6

Claim college student or file on her own?

I will assume that your daughter is not married, has no children, and receives her support from you. And because you did not mention scholarships, I will assume that they are not significant for this response in order to keep it as simple as I can. 

 

I assume that her employer withheld some state and federal taxes on the $3000 that she earned and that she has no other income. In order to get her withholdings refunded to her, your daughter should file her own return as Single, and she needs to mark her return that she "can" be claimed as a dependent on someone else's return.  That is not a choice.  She must mark it that way because you can claim her. 

 

Forget talk about Earned Income Credit.  Without children, the age for EITC needs to be 25 and under 65.  Her job is to get her education right now.

 

If you otherwise qualify to file as Head of Household, then file that way. Head of Household gets a $18,000 Standard Deduction compared to only getting $12,000 when filing Single.  You file with your daughter as your dependent.  If you don't claim her, then nobody get the dependency for her. If she is marked as your dependent, you can then look at claiming the American Opportunities Tax Credit (AOTC).  That credit has the potential to increase your refund by as much as $2500.  You will need your daughter's 1098-T from her school, her school financial statements (to know in which years money is paid for items), and records of applicable expenses such as tuition and books.

New Member

Claim college student or file on her own?

What if a college student has investment income (unearned) income as well as earned income?  Does the unearned income count as money they contribute to 50% of their own support?

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