Kiddie tax: Does form 8615 "support" include 529 payments for education and room and board?

[icurious]

Wondering about what is included in "support" when comparing a college student's earned income to their support. The definition of Support  in the instructions for form 8615 at 

     https://www.irs.gov/pub/irs-pdf/i8615.pdf

would seem to include 529 payments for education, room and board to the beneficiary's support.

Is that a correct interpretation?

From the instructions from form 8615:

c. Was a full-time student at least age 19 and under age 24 at the end of 2023 and didn’t have earned income that was more than half of the child's support. (Earned income is defined later. Support is defined below.)

Support. Your support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child isn’t considered support if your child is a full-time student. For details, see Pub. 501, Dependents, Standard Deduction, and Filing Information.

[Bsch4477]

From what I understand the IRS has not given a definitive answer but generally the 529 funds are considered as support paid by the parent. Other Champs might have more recent information. 

[Terri Lynn]

Hello, icurious!

You are right that there is some uncertainty around how 529 and ESA distributions should be treated for purposes of the support test for form 8615.

Since the IRS has not issued clear guidance or any explicit rules on this specific issue, there is definitely room for reasonable interpretation on your part. 

Many tax preparers feel a reasonable approach is to treat the distributions as parental support rather than student support, since the parents/guardians, own and control the 529/ESA accounts. This is reinforced by the notion that the parents ultimately retain control over the funds. Making the distribution checks payable to the parent or directly to the educational institution, rather than to the student beneficiary, would further demonstrate that the funds are indeed parental support.

Also, when referring to the support rules in Pub.501, p.16, worksheet 2 for determining expenses, it clearly states that Total Education Expenses are to be included in the calculation, as support from the person who paid it.

Lastly, I would suggest, that due to the fact there is ambiguity around whether these distributions should be considered support provided by the account owner or the student, a prudent approach would be to disclose the distributions and take a reasonable position until the IRS provides more definitive guidance.

For Additional Information on form 8615 see:

2024 Form 8615 Instructions 

Pub 970 Tax Benefits for Education 

Pub 501 Dependents, Standard Deduction, and Filing Information 

Tax planning for parents of college students What is IRS Form 8615: Tax for Certain Children Who Have Unearned Income 

Please feel free to reach back-out with any additional questions or concerns you might have!

I hope you have an amazing rest of your day and best of luck moving forward!

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