My college student daughters support themselves with student loans in their names, can I remove them as dependents on my taxes? Will this affect health insurance?

Forum|Forum|1 year ago
March 6, 2025
3 replies
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Both daughters receive federal and private student loans. I will assist them later when repaying the loans, but can't help much right now. The loans are all in their names, so I am not really providing much financial support. They can both claim education credits on their taxes if they are no longer dependents. If they do, will this affect anything else that I may not be thinking of? Health insurance or anything? They are listed as my dependents on my health insurance.

Bsch4477

Employee

You are correct that their loans count as their support and if they provide more than half of their support you must not include them as dependents on your return. You would have to ask your insurance company about coverage.

Vanessa A

Yes, you can remove them from your return since they are providing over half of their own support and you can no longer claim them as dependents.

Do you have insurance through the Marketplace for them? If so, then you would need to update the information with the marketplace and they could potentially get their own policies. For 2024, they would each need to enter the 1095-A on their returns and you would all select an allocation amount which can be anywhere between 0 and 100% as long as it adds up to 100%. It is perfectly fine for you to claim 100% and them to claim 0%.

If you have insurance elsewhere for them you would have to check with the insurance company.

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jstevens242

They are currently insured through the health insurance I have through my employer. It is a High Deductible plan with an HSA.

Bsch4477

Employee

You can keep your biological, step, adopted, or foster children on your health insurance, even if they aren't dependent on you, until they turn 26.

Hal_Al

Employee

Q. They can both claim education credits on their taxes if they are no longer dependents. Correct?

A. No.

There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans 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#en_US_2024_publink53002gd0e674

Q. If they do, will this affect anything else that I may not be thinking of?

A. If you can claim them as dependents, you can claim the education credit, on your tax return, even though you did not actually pay any tuition or other expenses. For two students, that's a minimum of $2000 for you and possibly as much as $5000.

If you co-signed the loans, the loans count as support from you and not the student supporting herself. Students away at college are considered as only being temporarily absent and as still living with you.

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