When your adult child qualifies as a dependent, you can spend money on them without it being considered a gift for tax purposes. is this correct?

[HypotheticalQuestions]

I have found several blogs that say for adult college students that qualify as dependents, what I spend for their housing and food is considered support and not a gift in the eyes of the IRS. The TurboTax AI said the same thing. I want to verify that what I spend for a dependent for school above tuition is considered support generally and not a gift.

[Mike9241]

here's a link to instructions for Form 709 - gift tax return

look a page 3 - Transfers not subject to gift tax - this is not all inclusive (the pub uses the word exclusion which infers from being a gift)  

The IRS isn’t interested in the rental value of your adult child’s bedroom or the amount of food that they consume without paying. You can pay as much as you want for tuition, medical expenses, or health insurance premiums on behalf of your adult children without worrying about gift tax returns.

there is an annual exclusion for 2025 of $19,000 per donee. you also have your lifetime exclusion which is currently just under $14 million. 

Between support and gift not everything is clear cut such as buying a car or paying for a wedding. 

[HypotheticalQuestions]

Regarding the accounting, here is a hypothetical situation and I'd like someone to check the logic:

College costs for dependent student:

----------------------

Tuition: $10,000; Qualified Education costs (would be in Box 1 of 1098-T) 

Mandatory Fees: $5,000; Qualified Education costs (would be in Box 1 of 1098-T) 

Housing and Food: $15,000; Unqualified education costs (would not be in Box 1 of 1098-T)

--------------------

Total: $30,000

--------------------

Unrestricted Scholarship (can be used for any of above): $5,000

Accounting wise, the school lumps expenses and payments, including the scholarship in one general account, but will report the scholarship in Box 5 of the 1098-T

I have checked online, and it says as long as a person makes the payment directly to the school, the tuition is never considered a gift, it also says that a parent has leeway in terms of how the unrestricted scholarship is allocated when performing tax calculations regardless of how the school actually did it.

So, to avoid any need to fill out a 709 I assume that the scholarship is applied to Fees first, then Tuition, such that:

Tuition: $10,000 - not a gift, not reportable as gift

Fees: $5,000 - $5,000 scholarship = $0 - therefore no money to report 

Housing and Food: $15,000 - while this is considered as support when used on a dependent and not a gift, if it was considered a gift, it is below the $19,000 gift threshold so no 709 needs to be filed

Is this good math?  I did research and asked several AI's and I am told this is completely legitimate way to approach the problem.  I also had several AI's say that since the housing and food is considered support when the college student is my dependent, the IRS wouldn't expect it to be reported as a gift even if it was over $19,000

I believe that most parents and advisors say that paying for housing and food for an adult dependent at college is not considered a gift and I have made a list of relatively recent references.  

Gifts, Loans, Taxes and Your Adult Children

You can spend any amount on a dependent without the money being counted as a gift, so the gift tax rules will be irrelevant if your child is considered your dependent, regardless of how old he or she is.

 Gift Tax Implications: Supporting Adult Children in 2025

If your adult child is your dependent, financial support is not considered a taxable gift.

How to Pay for College for a Grandchild or Someone Else -

What exactly are we talking about on paying for college? Do I have to worry about taxes when paying for college for my child?

Michael Barker: Jean, that’s a great question and a good place to start, because paying for your own child to go to college is fairly easy from a tax perspective. Because parents are deemed to have an obligation of support for their children, so, most payments for college expenses would not constitute gifts for gift tax purposes. 

[HypotheticalQuestions]

the dead link went to below

go.upcloudaccounting.com/post/gift-tax-implications-supporting-adult-children-in-2025

also another article

blog.taxact.com/gift-tax-supporting-adult-children/

When your adult child qualifies as a dependent, you can spend money on them without it being considered a gift for tax purposes

[Mike9241]

See this IRS webpage on the taxability of scholarships.

https://www.irs.gov/taxtopics/tc421 

each person can gift a donee up to $19,000 for 2025 without having to file a gift tax return. 

in addition, each individual has a lifetime exclusion of about $14 million. only gifts to a donee over the limit during the year require  form 709 and count against the lifetime exclusion

The donee is never taxed on a gift. 

support is not a gift.

as to amounts spent for education, this is what the instructions from the gift tax return form 709 say.

Educational exclusion. The gift tax does not apply to an
amount you paid on behalf of an individual to a qualifying
domestic or foreign educational organization as tuition for the
education or training of the individual. A qualifying educational
organization is one that normally maintains a regular faculty and
curriculum and normally has a regularly enrolled body of pupils
or students in attendance at the place where its educational
activities are regularly carried on. See section 170(b)(1)(A)(ii)
and its regulations.
The payment must be made directly to the qualifying
educational organization and it must be for tuition. No
educational exclusion is allowed for amounts paid for books,
supplies, room and board, or other similar expenses that are not
direct tuition costs. To the extent that the payment to the
educational organization was for something other than tuition, it
is a gift to the individual for whose benefit it was made, and may
be offset by the annual exclusion if it is otherwise available.

[HypotheticalQuestions]

thanks, do you have an opinion on the math as well? 

Many advisors and even the AI's say that paying for housing and food for a dependent is support and not a gift.  So is not subject to gift accounting.  So if support is not a gift, awesome, but if it is a gift I still have a question on the math. 

There is plenty of articles that say parents are free to choose how to apply unrestricted scholarship dollars in their calculations of costs.  If you choose to apply those funds to fees first, then tuition, that reduces the amount that might be considered a gift without creating a situation where those scholarship dollars would be taxable (as would be the case if one considered them applied housing and food). 

Is the math in the scenario I outlined a valid approach?  I am getting strong indications and have answers from others already that say it is, but I didn't know if there is a different view.

[AmeliesUncle]

I think hardly anybody does this, but for Gift Tax purposes, the IRS and courts have rulings saying that unless you are legally obligated to support that person (such as a minor), most anything is a Gift.  For Gift Tax purposes, things like "support" and "dependent" are not factored in.

https://www.thetaxadviser.com/issues/2021/dec/indirect-gift-tax-considerations-2021/

That means that hypothetically, yes, Gift Tax returns may be required if you pay for items for someone that you are not legally obligated to support.  But as I said, I don't know if anybody actually does that in real life.

As a side note, just because it is a "gift" for purposes of Gift Tax doesn't necessarily mean it is a gift for income tax purposes - it could be "support" for a dependent for income tax purposes.

[HypotheticalQuestions]

Thanks, do you have thoughts on the math though.  I have one response that says it is a valid approach, and several AI responses as well which say the same thing. It really is about how one considers the accounting; it is a layering approach that puts fees first in the application of scholarship money.  But the scenario again is as follows:

College costs for dependent student:

----------------------

Tuition: $10,000; Qualified Education costs (would be in Box 1 of 1098-T) 

Mandatory Fees: $5,000; Qualified Education costs (would be in Box 1 of 1098-T) 

Housing and Food: $15,000; Unqualified education costs (would not be in Box 1 of 1098-T)

--------------------

Total: $30,000

--------------------

Unrestricted Scholarship (can be used for any of above): $5,000

Accounting wise, the school lumps expenses and payments, including the scholarship in one general account, but will report the scholarship in Box 5 of the 1098-T

I have checked online, and it says as long as a person makes the payment directly to the school, the tuition is never considered a gift, it also says that a parent has leeway in terms of how the unrestricted scholarship is allocated when performing tax calculations regardless of how the school actually did it.

So, to avoid any need to fill out a 709 I assume that the scholarship is applied to Fees first, then Tuition, such that:

Tuition: $10,000 - not a gift, not reportable as gift

Fees: $5,000 - $5,000 scholarship = $0 - therefore no money to report 

Housing and Food: $15,000 - while this is considered as support when used on a dependent and not a gift, if it was considered a gift, it is below the $19,000 gift threshold so no 709 needs to be filed

Is this good math?  I did research and asked several AI's and I am told this is completely legitimate way to approach the problem.  I also had several AI's say that since the housing and food is considered support when the college student is my dependent, the IRS wouldn't expect it to be reported as a gift even if it was over $19,000

[HypotheticalQuestions]

Also here is what google ai said:

Your logic and math are correct for the 2025 tax year. Under the scenario provided, you would not need to file Form 709. Your strategy utilizes two distinct tax provisions: the Unlimited Educational Exclusion and the Support Obligation for dependents.

Step 1: Apply the Unlimited Educational Exclusion

Under Internal Revenue Code Section 2503(e), payments made directly to a qualifying educational institution for tuition are not considered gifts. This exclusion is unlimited and does not count toward your annual gift tax limit.

• Tuition: $10,000 (Paid directly) = $0 reportable gift.

Step 2: Categorize Support for a Dependent

For a student who qualifies as your dependent, payments for "necessaries" such as food and housing are considered a fulfillment of a legal obligation of support. Because these payments are support and not "gifts," they are generally excluded from gift tax reporting entirely.

• Housing and Food: $15,000 (Support) = $0 reportable gift.

Step 3: Allocate the Scholarship to Remaining Costs

Mandatory fees (unlike tuition) do not qualify for the unlimited educational exclusion. However, your allocation of the unrestricted scholarship effectively reduces the reportable "gift" portion of the expenses to zero.

• Mandatory Fees: $5,000
• Scholarship applied to Fees: -$5,000
• Remaining reportable amount: $0

Answer:

The math holds up. Even if you chose to ignore the "support" argument and treated everything except tuition as a gift, you would still be well within the 2025 individual annual exclusion of $19,000.

Total Potential Gift = (Fees + Housing) - Scholarship

Total Potential Gift = ($5,000 + $15,000) - $5,000 = $15,000

$15,000 < $19,000

Since the total non-exempt amount ($15,000) is less than the $19,000 individual limit, no Form 709 is required.

Key Consideration: Ensure the tuition and fees are paid directly to the school rather than giving the cash to the student. If you give the cash to the student to pay the school themselves, the tuition exclusion is lost, and the entire amount counts against your annual $19,000 limit.