College Tuition

Forum|Forum|3 years ago
March 6, 2023
3 replies
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My son has a large amount of money in a savings account (in his name) that as he received an insurance settlement. We are using this money to pay for his college tuition and his college housing - he is a full time student. He was 21 most of last year (2022). He also had a job and earned just over $8,000 which he used to pay for some living expenses. However, we (his parents) paid for his car insurance, medical and other incidentals. I am not sure if we should continue to claim his a dependent. Also, since he paid for his own college tuition, should he report the 1098-T form on his taxes? Any help answering any of these questions would be appreciated.

Bsch4477

Employee

The question is whether he provided more than half of his support. Use this worksheet to help you determine that. If he, indeed, provided more than half of his support, he is not your dependent and reports the 1098-T.

https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

KrisD15

If he received an insurance settlement and that is his money, and if he is using his money to supply more than half his own support, he would not be your dependent.

If you paid more than half his own support, you can claim him.

You can use this worksheet to help determine if he is your dependent.

If you decide he is NOT your dependent, he will file and report the 1098-T for an Education Credit.

If you decide he IS your dependent, you will report the 1098-T for an education credit.

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Hal_Al

Employee

There's more bad news. Even though he may not be your dependent, he still cannot claim (all) the education credit, because most of his support comes from unearned income (the savings account).

A full time unmarried student, under age 24, even if he doesn't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. He cannot be supporting himself on parental support, 529 plans, savings, or student loans & grants. It is usually best if the parent claims that credit.

Reference: Line 7 instructions for form 8863*. https://www.irs.gov/instructions/i8863

One option is to arrange the family finances so that he is not paying more than half his own support, so that you can continue to claim him as a dependent. The education credit is worth (up to) $2500 to you and (probably) $0 to him.

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.

*Line 7, form 8863, instructions:

If you were under age 24 at the end of 2022 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, you can claim your allowed credit, figured in Part II, only as a nonrefundable credit to reduce your tax.

You don't qualify for a refundable American opportunity credit if 1 (a, b, or c), 2, and 3 below apply to you.

1.	You were:
	a.	Under age 18 at the end of 2022, or
	b.	Age 18 at the end of 2022 and your earned income (defined later) was less than one-half of your support (defined later), or
	c.	Over age 18 and under age 24 at the end of 2022 and a full-time student (defined later) and your earned income (defined later) was less than one-half of your support (defined later).
2.	At least one of your parents was alive at the end of 2022.
3.	You're not filing a joint return for 2022.

Carl11_2

Employee

Here's what may be better clarity, as I do believe others in this thread are cuains the reader to misinterpret things.

If the student:

- Was under the age of 24 on Dec 31 of the tax year, and;

- was enrolled as a full time student for "any" "one" "semester" that started during the tax year and;

- was enrolled in a course of study that will lead to a degree or credentialed certification and;

- was enrolled in an accredited institution and;

- did not provide more than half of their own support, (all third part income such as scholarships, grants, 529 distributions, gifts from Aunt Mary, money from parents, etc. *do* *not* *count* for the student providing their own support.) then:

the parents qualify to claim the student as a dependent on the parent's tax return. Period.

Further clarification of the above.

- There is no requirement for the parents to provide the student any support. Not one penny. The support requirement is on the student, and only the student.

- There are only two possible ways the student can lay claim to providing more than half of their own support.

a. The student had a W-2 job or was self-employed during the tax year, and earned enough money to justify a claim to providing more than half of their own support. Additionally, the money earned by the student must be more than the total of all third party income provided. (scholarships, grants, 529 distributions, etc.)

b. The student is the *primary* borrower on a qualified student loan, and sufficient funds were distributed during the tax year to justify a claim to providing more than half of their own support. Additionally, the total of all monies distributed from the qualified student loan must be more than the total of all third party income received during the tax year.

If the student is required to file a tax return and the parents qualify to claim the student as a dependent, then the student must select the option for "I can be claimed on someone else's tax return". Take note that the key word here is *QUALIFY*. If the student *qualifies* to be claimed as a dependent on the parent's tax return, then it does not matter if the parent's actually claim the student or not. The student is still required to indicate on the student's tax return that they *can* be claimed a a dependent on someone else's tax return.

When it comes to dependency status, the parents have a choice to claim or not claim the student. The student does not have a choice.