Financial Aid/Tax Claims Questions

slash25rc · 10-16-2012, 06:35 PM

I am currently a junior in undergraduate school. I currently live with my girlfriend and have been working for the last 2 years while going to school. I used FASFA to pay for my tuition and books this year and was wondering what to do come tax time. My parents provide me with no financial assitance whatsoever. I pay for my truck, housing, and other bills from working about 30 hours a week while taking 17 credit hours. I was just wondering if I claim myself on my taxes, instead of my parents claiming me, would I get more money on my returns and possibly more money on financial aid, even though I still have to put their financial information on my FASFA applications? I've been told that I could possibly get more money if i claim myself. Just wanted to know the facts. Thanks.

thumper1 · 10-16-2012, 06:53 PM

Your tax filing status has absolutely no bearing on the FAFSA. Even if you are fully supporting yourself, you are not considered independent for financial aid purposes unless you are married, are a veteran of the armed forces, are an orphan, are in guardianship of someone other than your parents, have a child you support...or are over age 24. If none of those apply, you are a dependent for financial aid purposes.

And FAFSA realty doesn't give you money. It is a financial aid application form that determines your eligibility for federally funded need based aid.

How did you pay the cost of attending college up until now? Even with maximum federal aid, full cost of attending a four year university is not always fully covered. If your costs were covered up until now, why do you think you would benefit by being independent from your parents?

slash25rc · 10-16-2012, 07:47 PM

I paid out of pocket and with aid. No loans. And I attend a university. My main question is would i recieve more money from claiming myself, via tax returns, rather than have a parent claim me and get the benefits since they don't help me out anyways.

annoyingdad · 10-16-2012, 07:57 PM

If you are providing more than 1/2 your support for the year, your parents cannot legally claim you as a dependent on their taxes. If that is the case, you should claim yourself and not check the box that says you can be claimed by someone else. You will have a higher standard deduction.

thumper1 · 10-16-2012, 08:16 PM

It sounds like you are looking more for information about tuition tax credits you might be able to take IF your parents don't take them. Is that what you are looking for info about?

swimcatsmom · 10-16-2012, 08:23 PM

If you are providing more than half your own support then your parents should not claim you as a dependent (it is not legal for them to claim you in fact). Instead, you should file as not being claimed as a dependent and claim your own individual exemption. This will add to an individual exemption of $3800 to your standard deduction of $5950 meaning your first $9750 of earnings will be tax free.

Additionally, you will be able to claim any relevant education tax credits on your own tax return. If you do not already have an undergrad degree and are in the first 4 years of your undergrad program, the American Opportunity tax credit can give you a tax credit of up to $2500 (100% of the first $2000 tuition paid and 25% of the next $2,000). Up to 40% of the credit is refundable.

CTScoutmom · 10-16-2012, 08:39 PM

It sounds like your parents don't provide any support, and you provide all of it (scholarships do not count toward total support). That means you are entitled to your own exemption, as well as your tax credits. If you provided your own support in 2011, you should have claimed yourself that year as well. Your parents probably won't be happy with you, but you can amend your 2011 tax return and claim your exemption and tax credits. If you do so, the IRS will look over both your return and theirs, and determine who is entitled to the exemption. If they agree with you (which they should if you can show you supported yourself), you get a nice refund, but your parents will then owe back taxes. There is also the issue that you don't live with them - you are not simply away at school, but are maintaining a separate household.

None of that will change your status for financial aid - the only easy way to do that is to marry your girlfriend.

Be forewarned: when you claim yourself, you will get your tax refund, but the final numbers on your FAFSA will change for the worse - your income stays the same, but your exclusion for taxes paid is reduced, and you will likely be expected to pay 50% of the difference. If you amend 2011 and get a refund, that refund will be additional income the year you receive it as well. Meanwhile your parents tax payment will go up, reducing their part of the family contribution, which may or may not be assessed at a similar rate. If next year will in fact be your last year, this shouldn't be too much of a concern, as long as your amend those returns after your file your 2013 FAFSA. Of course you will need to tell your parents not to claim you, or the information they give you for your FAFSA will be incorrect. I would talk to them about this now, rather than taking the cowards route of filing your return before them to claim yourself.

cptofthehouse · 10-17-2012, 11:16 AM

You should sit down when you have some time and see how you fare in the prior years regarding whether or not you should refile past returns. You should also ask your parents if they did take any college tax credits or consideration on their returns. It may not be worth while for you to refile for back years.

However, for this year, if you are truly not a dependent by definiton, you legally should not be filing as such, and, yes, file on your own. Let your parents know what you are doing so that they do not claim you as a dependent and that they do not claim any college tax benefit.

Madison85 · 10-17-2012, 02:48 PM

Be careful, to claim the refundable portion of American Opportunity Credit, the student must have provided over half of his/her own support with EARNED income.

Publication 970 (2011), Tax Benefits for Education

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2011 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, your allowed credit (figured on Form 8863, Part IV) will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.

You were:

Under age 18 at the end of 2011, or

Age 18 at the end of 2011 and your earned income (defined below) was less than one-half of your support (defined below), or

Over age 18 and under age 24 at the end of 2011 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below).

At least one of your parents was alive at the end of 2011.

You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2011.

Earned income. Examples of earned income include wages, salaries, tips, and other taxable employee pay; net earnings from self-employment; and gross income received as a statutory employee. Statutory employees include full-time life insurance agents, certain agent or commission drivers and traveling salespersons, and certain homeworkers.
Support. Your support includes all amounts spent to provide you with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your support, count support provided by you, your parents, and others. However, a scholarship received by you is not considered support if you are a full-time student. See Publication 501 for details.
Full-time student. You are a full-time student for 2011 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency.

CTScoutmom · 10-17-2012, 04:00 PM

This shouldn't be a problem. The OP is working 30 hours a week, and paying his own support. If he was not providing his own support, he would not qualify to claim his own exemption in the first place - these qualifications are the same ones used to determine whether you can be claimed as someone else's dependent.

While education expenses are part of support, the amount of scholarships are not considered as part of the support figure. I have a client who takes out loans in his own name because they count as support provided by himself (because he is responsible for paying them back). This prevents his non-custodial father, who provides no support from claiming him (divorce decree say NCP gets to claim kids, if they qualify).

Madison85 · 10-17-2012, 07:59 PM

It sounds like you are saying that the OP's earned income (assume $10/hour x 30 hours/week) is probably at least equal to one-half of the amount spent on food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities.

cptofthehouse · 10-17-2012, 08:14 PM

Since the parents are providing nothing at all, I don't think there is an issue here.

swimcatsmom · 10-17-2012, 08:32 PM

Agreed. I did not mention the rule about under 24s not being able to claim the refundable credit as the OP stated in his first post that he is fully supporting himself through his job. That being the case, he should have no problem with the refundable part of the credit.

Madison85 · 10-18-2012, 10:11 AM

OP states that he 'used FAFSA to pay for his tuition and books'. Therefore he might not be fully supporting himself through his job.

It is possible that if the cost of his tuition and books, paid for through aid, is more than half of everything spent*, he can't take the refundable part of the credit since aid - loans/grants/scholarships- is not earned income.

*Also consider whether he is covered by a parent's medical insurance, then that is one more item of his total support that he is not paying for.

cptofthehouse · 10-18-2012, 11:33 AM

Most insurance coverages don't charge for an extra dependent, so I don't even know how that will charged as support. I don't think that this is a big issue. The fact of the matter is that if no one else is paying for anything, no one else should be getting the tax credit. He may not get the tax credit refunded either, but it looks like he is the one who should be taking it.