College Financial Aid and Dependents
Most parents of college students assume that they can claim their child as a dependent on their tax return. Even if the child has a part-time job-or a full time job, for that matter-the parent assumes that the child still qualifies as a dependent. However, that may be an incorrect assumption.
To claim child as a dependent, the following seven criteria must be met:
1. The parent cannot be claimed as a dependent of someone else,
2. The child cannot be filing married filing jointly unless he/she is only doing in order to receive a refund.
3. The child must be a United States citizen, a United States national, or a resident of the United States, Mexico or Canada,
4. Relationship test. The child must be your son, daughter, step child, foster child, brother, sister, step brother or step sister or any descendant of these.
5. Member of the household test. The child must have lived with your for more than half of the year. Absences for college or hospitalization or summer camp count as living with you.
6. Age test. The child must either be under age 19 or a full-time student for any part of 5 calendar months of the year, or any age and permanently and totally disabled.
7. Support test. The child cannot provide more than half of his/her support for the calendar year.
Most parents would feel that the above list is a "given". Of course, the child is a citizen, lived with me, I provided the support, etc.
However, as stated above, in order to be claimed as a dependent, the parent must pay over half of the child's support. There's the rub! It is possible that the fully-employed child is actually paying over half of his/her support. Parents should add up the total spent on supporting the child (shelter, food, clothing, etc.) and also total what they pay for the support. If it is less than half of the total, the child is not their dependent for tax purposes.
Another even more devastating way to lose a dependent is through student loans. If a child receives a loan (not a grant), it is counted as the child's income for dependency purposes. For example, if Sally receives a loan for tuition in the amount of $20,000, she will be treated as having spent that $20,000 toward her support. Her total support would have to spend more than $40,000 in order for her parents to claim her as a dependent.
Let's say that Sally also had a part-time job where she made $5000, bringing her income for calculating dependency to $25,000. Her total support would need to be at least $50,000 for her parents to be able to claim her as a dependent.
Parents should carefully calculate the amount spent on support of their child before assuming that the child is a dependent for tax purposes.