All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Pioneer
Posts: 2
Registered: ‎10-10-2017

Employed dependant Student

Our Daughter is a full time college student in Northern California & is also working part time. She earned $6,764 in 2016. We Live in So. Cal, are on an extention for 2016 & need to file by October 16th. Can we claim her as a dependant, does she need to file her own return, & does she get any refund directly?

Thanks for your help!

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Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Employed dependant Student

Hi artistDad21,

 

 

Welcome to the H&R Block community.

 

First, a quick heads up, if you are in a federally declared disaster area the IRS has granted you an automatic extension through January 31st.  Many areas of Texas as well as my entire home state of Florida fall into this category.  Not sure if there were any in California, but the extra extension is the same for everyone in all disaster areas this year so I thought I'd bring it up.

 

Your daughter must file her own tax return, but if she qualifies as your dependent (and I'm sure she does) she should leave all check boxes on Line 6 blank indicating that she is the dependent of another taxpayer.  So long as she leaves those check boxes blank indicating that she is a dependent she can file during the tax filing season rather than wait if she would like even if you file for an extension for your own return.  Her personal exemptions should be equal to zero.  Your daughter does have a filing requirement since the filing threshold for a dependent is $6,300.  Her refund from her withholdings will go directly to her.  Note that in the H&R Block software instead of leaving all check boxes blank like you do on a paper return there will be a question or two that she will have to answer about whether or not she can be claimed.

 

YOUR DAUGHTER QUALIFIES AS A DEPENDENT CHILD IF:

  • She is related to you.
  • She lived with you for more than half of the year (time spent at school on campus counts as if she lived with you).
  • She is in school full time.
  • She is under age 24.
  • She provides less than 50% of her own support.
  • She did not file a joint return with another taxpayer unless an exception applies.

 

Based on the information provided I do believe she will qualify, but make sure that you go through these requirements just to be sure.  The support test is of particular importance since it is usually the make or break item for college students.

 

Your daughter may be eligible for the American Opportunity Credit since she is in school.  This is a $2,500 partially refundable credit.  If she (or you) paid for $4,000 or more worth of qualifying expenses and her total scholarships & grants were less than her total qualifying expenses by at least $4,000 then she is eligible for the full credit.  The full credit is $1,000 refundable credit and $1,500 non-refundable credit.  The credit must be claimed on your tax return since dependents cannot claim credits.  In my experience most parents benefit from the non-refundable credit and then many of them give the refundable part of the credit to their student to help them out once the refund arrives.  Qualifying expenses include tuition, fees, and books.

 

If your daughter does not meet the qualifications above then she cannot be claimed as your dependent and she will claim her education credit on her own tax return.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Pioneer
Posts: 2
Registered: ‎10-10-2017

Re: Employed dependant Student

Dear Louis,
 
Thank you for your prompt response. To follow up, I have a couple more questions...
 
Since or daughter was a Freshman in the fall of 2016, she definitely meets the requirements as our dependent, but not sure if she qualifies for the American Opportunity Credit?
 
Since she was in school for just 1- semester in 2016, we didn't pay $4,000 or more worth of qualifying expenses. 
 
Her total scholarships & grants were less than her total billed qualifying expenses, but not by $4,000?
 
According to the Form 1098-T (Fall 2016) sent to us by the University;
Line 2: Billed Qualifying Tuition & Expenses = $6,228
Line 5: Scholarships / Grants = $5,704
 
Can we include Student Housing & Meal Plan costs as qualifying expenses?
If so, then they will put us over the $4,000 requirement...
 
Can we include Subsidized Student Loan &/or Unsubsidized Loan amounts also?
Can we include the Loans if we use the Lifetime Learning Credit if we don't
qualify for the American Opportunity Credit?
 
Boy, I feel like I need to go to college just to figure this all out!
 
Thank you in advance for your help on these issues.
 
Best regards,
artistDad21

 

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Employed dependant Student

Hi artistDad21,

 

 

You're quite welcome.  Education benefits is one of my areas of expertise.

 

Was your daughter in high school during the spring of 2016?  If so then she was in school full time for the entire year and she will qualify for the American Opportunity Credit.

 

Your daughter's expenses for courses starting within the first three months of 2017 also count for credit on your 2016 tax return, provided that they were paid for with student loans & other financial aid or that you paid out-of-pocket for them by the end of 2016.  So basically her 2017 spring semester counts unless she took a "Spring II" class during the second half of the spring.  Note that you can wait until you complete your 2017 tax returns to claim spring 2017 expenses if you so choose.

 

All expenses paid for with student loans count as if you paid the expenses out-of-pocket.

 

Meals & housing are not qualifying expenses, but you can assign scholarships to cover those items first if you would like which may result in more credit (more about that later).

 

So what we're looking at here is $6,228 - $5,704 is equal to $524 that can be applied to calculate the American Opportunity Credit.  Add to the $524 the cost of any textbooks and other required materials that your daughter purchased for the fall.  Textbooks & other required materials are qualifying expenses but are not reported on Form 1098-T.  Also, if you choose to add the spring of 2017, use your daughter's billing records from her school to determine the figures for spring 2017.  Both the amount billed and the scholarship amount can usually be accessed online through the student's student account at most educational institutions.

 

The $4,000 worth of expenses in excess of scholarships & grants is what's required for maximum credit.  You'll get a partial American Opportunity Credit if you do not have enough expenses to reach the maximum credit.

 

There is a way to potentially get the maximum credit even if you don't have enough expenses going by the initial calculation.  Since you have $5,704 worth of scholarships and your expenses were $6,228 you're looking a partial credit after the normal calculation.  However, provided that the scholarships & grants are not restricted (you don't have to use them on anything in particular) you can claim them as taxable income which reduces that side of the equation.  So if you claim 3,476 of the scholarships as taxable income on Line 7 of your 1040 your qualifying expenses are still $6,228 but your tax-free assistance (Box 5 of Form 1098-T) is reduced to $2,228 which results in your qualifying expenses exceeding your scholarships by $4,000.  You can now claim the full American Opportunity Credit.