Can my parents claim me as a dependent? I am a 22 year old full time college student who received around $10,000 in gross income (summer job + taxable scholarship money).

[KrisD15]

Whoever claims the student claims the education credit. 

If the student is a dependent, but the taxpayer that could claim the student doesn't claim the student, the student can enter the 1098-T and get the non-refundable part of an education credit if otherwise eligible. 

This is done in TurboTax by the parents not claiming the student and the student selecting "Yes" to "Someone else can claim me" and "NO" to "Someone else will claim me". 

[Hal_Al]

Q. If Child 1 is claiming themselves and parent doesn't claim them as a dependent, then Child 1 can use the 1098-T education expenses on their return, instead of parents, correct? 

A. Basically yes.  But there are restrictions on a student under 24 claiming the refundable portion of the AOC. He must support himself by working.  Note that in order for the student to claim even the non refundable credit, the parent must actually not claim the student as a dependent, and forego the $500 other dependent credit.

Q. If parents claim Child 1, then the parents would include the 1098-T education expenses on their return, correct?

A. No, if the parents income is too high,  the 1098-T goes to waste. 

Q. Since the distribution was not used by the beneficiary (Child 2), the earnings are now taxable, and a 10% penalty is owed, correct? 

A. Yes, except if child 2 was also in college.  It is not necessary that the distribution actually pay for his education.  It's only necessary that he have college expenses in the same year as the distribution. 

Q.  Whose tax return reports the income?  Child 2, or the parents? If Child 2 reports it, then Kiddie Tax kicks in.

A. Child 2. His SS# is on the 1099-Q. He is the recipient. Yes, the distribution is subject to the kiddie tax.

PS. Bad move sending Child 2 529 distribution directly to Child 1's school. 

@Accountant01 

[Accountant01]

Child 2 was not in college, still high school.  Not sure about private school.  Even if distribution went directly to Child 1's college, if Child 2 had private school expenses, could that expense be used against the 1099-Q, even if the 1099-Q didn't pay for it?  The distribution was quite a lot, and the earnings are twice the $10,000 limit. So how to prorate the taxable portion of the earnings and 10% penalty??

[Carl]

if Child 2 had private school expenses, could that expense be used against the 1099-Q

That depends. If CHild 1 was the named benificiary on the 1099-Q, then no.

If one of the parent's of child 1 and child 2 were the named beneficiaries on the 1099-Q, then yes, provided the parents' claimed the children as a dependent on their tax return.

[Hal_Al]

Under the 2018 tax law, pvt school tuition is eligible, up to $10k.

Example:
  $10,000 in educational expenses

Box 1 of the 1099-Q is $30,000

Box 2 is $20,000

10,000 / 30,000 = 33% of the earnings are tax free

33% x $20,000 = $6,666

You have $13,334 of taxable income (20,000 - 6666), also subject to 10% penalty

[Accountant01]

Thank you.  Unfortunately, Child 2 is beneficiary, so according to you, not able to use the private school as eligible education expenses against it, since it went directly to Child 1's school.

[Hal_Al]

I think @Carl meant to say *recipeint* instead of *named beneficiary*. 

I'm not sure the conclusion is correct (that you can't take a partial earnings exclusion).  Child 2 is the beneficiary of the distribution and Child 2 had $10K of qualified expenses for the year. 

[Carl]

If the social security number that appears in the box labeled "Recipient's TIN" on the 1099-Q is that of child 1, then child 1 is the only person the funds can be used for tax free.  That's because since child 1's SSN is on the 1099-Q, then child 1 is the only one who will report that 1099-Q on their own tax return, *IF* they are required to file a tax return.

If the social security number that appears in that box is one of the parent's, then the funds can be used for the qualified expenses of any child who qualifies as their dependent, provided they claim that child as their dependent.

[Traci_116]

I know this is an old post but it's interesting. 

In this crazy pandemic,  my daughter had a seasonal winter job and was let go jan 1. She is now collecting unemployment.  Should I make her stop collecting once she hits 12,400? I know she has to pay taxes and she's taking them out, anything over 1100 on unearned income.  If she collects over 20,000 in unemployment,  and is a full time student,  and under age 24, I can still claim her as a dependent in 2022? She can go over 12,400 as long as she pays taxes and puts someone else can claim her when she files.  Am I correct?

[Hal_Al]

@Traci_116 

 Yes, she can go over $12,400 as long as she pays taxes and puts someone else can claim her when she files.

There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

[sammx14]

Hi! I'm so sorry to be asking such a similar question, but I just wanted to see what you had to say about my specific situation. I am a 21 year old, full-time college student, with a part-time job. I live at home with my parents, they pay my phone bill, and I am still on their insurance. However, I support myself entirely when it comes to food, clothing, medical bills (aside from insurance), transportation expenses, and my entire schooling. Therefore, I believe that I provide more than 50% of my own support. Before I filed my taxes in February of 2020 (which have already been accepted and paid back to me), I spoke with my parents about me filing as an independent. They agreed, but now that my father is filing his taxes he sees that he can 'maximize his return' by filing me as a dependent. I'm assuming this has to do with the AOC and the Lifetime Learning Credit, and/or normal dependent returns. Either way, our conversation has flown out the window and I now worry I am going to receive an audit for filing as an independent but being claimed as a dependent on another return. When I filed, I did not say that I could be claimed as a dependent, due to me supporting over 50% of my expenses. Did I make a mistake? What should I expect after he files his return? Will we both be audited?

[VolvoGirl]

You have to also count in your support the cost of the house and utilities and everything.  So you might not provide over half of your own support.   If they try to claim you as a dependent then their efile will reject and they will have to mail their return.  If you can be claimed as a dependent you will have to amend your return.

How to amend a 2020 return
https://ttlc.intuit.com/community/amending/help/how-do-i-amend-my-return/01/27439

[VolvoGirl]

See IRS Pub 501 starting on page 10 bottom Dependents and Worksheet 2 page 15 for determining support,
https://www.irs.gov/pub/irs-pdf/p501.pdf

[sammx14]

thank you so much!

[DaveF1006]

His return will be rejected because you have already filed your return claiming your own dependency. You can discuss with him on whether or not to leave as is. Based on the parameters you gave, you are eligible to claim your own dependency as he cannot truthfully say that he provided more than 50% of your support.

You can amend your return and declare that you can be a dependent of someone else. I am not sure how long this will take the IRS to update your amendment since you are now able to efile those amendments this year. Until the update is effective however, his continued efforts to efile will be futile since you have already filed your return claiming your own dependency.