Can I Claim My College Student as a Dependent?

Welcome back to Jay’s Tax Insights, where we take the time to break down complex tax items and cover trending tax topics on a monthly basis to provide you with insight on the topic and assist with improving your financial standing for years to come. In today’s blog we focus on the age-old question of “Can I Claim my College Student as a Dependent” and break down the benefits of doing so, as well as provide some insight into 529 Plans and ESAs.

Overview:

One of the biggest question’s parents have after sending their child off to college is whether they can still claim their child as a dependent. It's a legitimate question, and each month thousands of parents search the web for an answer. Figuring out whom you can claim as a dependent can be confusing. But then again, so is pretty much everything about taxes. Before going to college, your child likely lived at home, depleted the food in your refrigerator on an hourly basis, and constantly asked you for gas money. It only made sense, then, that they were considered your dependent when tax season rolled around.

But now that your child is in college and living away from home for a good part of the year, can you still claim them as a dependent? Fortunately, the answer is yes - as long as certain criteria are met. In a nutshell, you can usually claim your college student as a dependent if they're a full-time student (enrolled as full-time via credits per the respective school for any part of at least 5 months during the year) at a qualifying school and they meet the IRS guidelines below. Note that only one person (or spouses filing jointly) may claim a student as a qualifying child. If your student is required to file their own tax return because they earned more than the standard deduction for taxes filed that year, you may still be able to claim them as a dependent.

IRS Rules for Claiming a College Student as a Dependent:

• AGE: Your child (student) must be less than 24 years old on December 31 of that tax year and younger than you (or your spouse, if filing jointly). Age restrictions do not apply if your child is "permanently and totally disabled."

• RELATIONSHIP: The student must be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of these categories (e.g., a grandchild or niece).
• SUPPORT: You must have provided more than 50% of your student's financial support, which includes expenditures for food, clothing, shelter, transportation, education, and medical and dental care. Any scholarships or grants your child receives for college generally do not count as support provided by the student.
• RESIDENCY: The student must have lived with you for more than half the year. (This does not include temporary absences, such as those due to being away at school.) Additionally, the dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or resident of Canada or Mexico. There are exceptions for some adopted children.
• JOINT RETURN: The student must not file a joint return for that tax year (unless the joint return is filed only to claim a refund of withheld income tax or estimated tax paid).

What If My Student Doesn't Meet the IRS Criteria?

If your college student doesn't meet the criteria described above, they may still be able to qualify as your dependent under certain guidelines.

U.S. tax laws, rules, and regulations are constantly in flux, which is why so many people work with accountants during tax season. It's best to consult with your accountant or tax attorney and review the IRS guidelines for claiming your student as a dependent before you make any tax-related decisions.

Most first-year college students will have already qualified as a dependent, assuming they were living at home for the first eight months of the year while they completed high school.

Benefits of Claiming a College Student as a Dependent

The ability to claim a dependent generally makes taxpayers eligible for more personal allowances, which may include education-related tax credits, such as the American Opportunity Tax Credit and the Lifetime Learning Credit. In addition to tax credits, deductions like the Student Loan Interest Deduction may also be available.

You'll need Form 1098-T to claim any Education Credits

Altogether, these tax benefits have the potential to save you thousands of dollars, which can in turn help pay for your child's education. Be aware that certain education tax credits have income limits. In some instances, your child may still be able to claim the credit on their own tax return, so long as you don't claim them as a dependent.

In order to claim any education credits, you'll need Form 1098-T. This form should be mailed to you or your student from the college and shows how much was paid in tuition and qualified expenses that year.

529 Plans and ESAs

Another item worth mentioning as we are on the topic of college education are 529 Plans and ESAs. Any money you take out of a 529 plan or Educational Savings Account (ESA) must be used for qualified educational expenses in order to be tax-free. Makes sense. But a lot of schools went remote or cancelled classes this year, which means your college might have refunded some or all of your 529 or ESA money. If that’s the case, you have 60 days to put the money back in the account or use it to cover other educational expenses. If you didn’t, you might have to pay income taxes and a withdrawal penalty.

There are also a couple of new ways you can use 529 plans, without having to pay any taxes. First, you can now use 529 plans to pay for the costs of certain apprenticeship programs, including fees, books, and supplies. And second, you can also use money from a 529 plan to pay off up to $10,000 in student loan debt (that’s $10,000 total - not annually) without having to pay any penalties or taxes.

The Bottom Line:

If you're still unsure about claiming your child as a dependent, have questions regarding your 529 Plan or ESAs or if you may have any questions regarding any other topics discussed above, please feel free to reach out to our team at the link below for additional assistance.

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