Dependent Status

[Sasquatch67]

my 22 year old son wants to claim he supported himself in 2021 and not have me claim him as a dependent. since he was a full time student, his $12.5K in income plus his student loans contributed to more than 50% of his costs. Can he count his own student loan for that determination? His costs were probably ~$30K and counting his loans, he contributed ~$20K coupled with his earnings gross.

[PattiF]

Student loans do not count as income. In the eyes of the IRS, these loans do not count towards your annual income.

But the amount of the loan is counted as support provided by the student.

[Edited 03/18/22|10:09 PST]

[Sasquatch67]

So despite the loans being solely in his name and for the sole purpose of paying for his part of his tuition while at college (along with his income), this can't count towards his supporting himself? He will be the sole person responsible to paying these loans for his cost of living. 

As a follow up then, since the loans for college don't count for him for his support (including tuition as support cost), can he then ignore tuition from his cost of living for purposes of support? This way his income supported 100% of his living expenses (rent, utilities, food, gas, insurance, entertainment, etc.), while his student loans counted for less than 50% of his tuition. 

His overall income ($12.5k) against his total cost including tuition ($28k) is 45%. Without tuition and the associated loans, that would increase to 100%

[PattiF]

Although the IRS does not consider this to be income, it would be regarded as support provided by the student. From the Journal of Accountancy:

"However, if a student pays the cost of tuition and fees or receives a student loan to pay them, that amount is counted as support provided by the student and can cause the child to fail the support test and thereby not qualify as a dependent"

By claiming himself for 2021, he will be eligible for the third Stimulus payment.

I have edited my previous post to include this information.

[Sasquatch67]

Thanks for clarifying for me. 

[Sasquatch67]

I actually have a follow up regarding my other son. The same income and student loan question applies and has been answered already, but he also is an RA at his college (because his tuition is higher than the 1st son). The school provides him free room and board and a payment towards his tuition in addition to a W-2 for his cash stipend as well. The question is can he count this ~$9K per semester in payments (or cost reductions) as support like the student loans? He is efffectively working (trust me he spends time doing the job), but he doesn't get a W-2 for the Room, Board & Tuition. He only gets a W-2 for the cash stipend ($750/semester). 

[DaveF1006]

To clarify, does the school report this extra income on his 1098T?

[Sasquatch67]

His 1098T reflects his net cost for the Fall semester was $12K vs. $20.5K, but only delineates the $3.3K tuition reduction for being an RA and doesn't reflect his free room & board - in fact it doesn't show the line item for room and board at all, as though he was living elsewhere and not on campus. So it effectively shows his costs lower than the normal cost due to his working as an RA in the Fall through: 1.) the $3.3K stated tuition reduction on the 1098T, and 2.) the unstated $5K reduction for room & board (not showing a cost for it).  In the details section of the 1098T, it does list unqualified charges of $5.9K  which could represent his free room and board ($5,015) plus his cash stipend ($713) for which he separately has a W2 for. The 1098T also shows his scholarship for the Spring semester of $3750 as a line item as a payment as well (wasn't an RA in Spring). 

[GeorgeM777]

No, but the stipend would count as support provided by the student.  According to the IRS, the scholarship would not be considered support provided by the student.  Neither would the tuition reduction, and the room & board for being an RA be considered support provided by the student.  In contrast, the stipend the student received, which was reported on a W-2, would be considered support provided by the student. 

@Sasquatch67

[Sasquatch67]

So Student loans in a student's name can count as support, but RA tuition reduction and free room and board do not?  How can this be? He is literally working a job to qualify for those reductions in Tuition and room and board, so he is effectively being paid. If he worked a job for the same $8500, it would count as support and qualify him as independent. So can he at least lower his costs of support for the tuition to include the reduction he earned as an RA and with the scholarship, as well as his room and board costs for Fall to be $0 since it was paid for? 

[JohnB5677]

College tuition and fees are included in the cost of support. Student loans are considered support to test if the person qualifies for dependency.

Support generally includes amounts expended for food, shelter, clothing, medical and dental care, education, and other similar items. If and how a particular expenditure is taken into account in the support test depends on the source of funds used to pay it.

[Sasquatch67]

So in the case on my younger son, his Fall Room & Board ($5K) was 'paid' for him along with another $3.3K in Tuition reduction as his compensation for being an RA, so do those 'payments' count towards providing his own support or not, just like his student loans do? I would think so, but I'm not getting clarity and trying to determine if he can claim to be independent or not.  

[Vanessa A · Accepted solution]

Since he is not being billed for the room and board and his tuition is being decreased, you will just need to decrease his expenses by that amount.  It does not count as income, it does not count as something paid.  It is a wash and not used as part of the calculations.