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Suggestions needed about state residency and taxes for student

jym626jym626 Registered User Posts: 52,134 Senior Member
edited July 2007 in Parent Cafe
Hello everyone, especially you accountants and tax attorneys out there. We had a conversation with our accountant yesterday about this, and remain undecided.

S#1 is making a decent amount of money on summer internship in Tx, as he did last year. He also makes money during the year as a tutor for a college tutoring company and gets a 1099. He is still considered a resident of our state, which hit him with a 7% income tax on his earnings last year. The same will happen this year, unless he changes his residency officially to Tx, where he attends school. It has no state income tax, so the savings will be enough to make a difference. As he has lived off campus this summer (and in 2005-06) he can probably produce utility bills in his name with an in-state address. He will have to get his drivers license changed (which he won't mind, because it will no longer need to have that big "UNDER 21" thing on it.) What else would we need to be thinking about, should he decide to do this? (The car is registered in my name, so we can probably leave that alone).

The school tuition will be unaffected by the in-state-out-of-state issue, so that doesn't play into the equation.

We were told we would still be able to claim him as a deduction, since we still pay the majority of his expenses. Are there other issues we need to consider?
Thanks for the help
Post edited by jym626 on

Replies to: Suggestions needed about state residency and taxes for student

  • conyatconyat - Posts: 2,519 Senior Member
    Not having any special knowledge, all I can think of is the obvious. That he won't be able to vote in your state, and that you should probably check with your any insurers to make sure they will still cover him on your policy if his legal residence changes. The difference in car insurance rates can vary considerably by residence.

    (I missed the part where the car would stay in your name. I'd definitely check with your insurer about this. Mine is not real big on insuring anyone who isn't part of my household.)
  • nngmmnngmm Registered User Posts: 5,708 Senior Member
    Is he on your health insurance? Will he still be covered?
  • violadadvioladad Registered User Posts: 6,645 Senior Member
    Potential health insurance issues depending on plan you have is the extent of out of network providers/services covered or offered... worth checking into as well.
  • jym626jym626 Registered User Posts: 52,134 Senior Member
    Hadn't considered that his health insurance would change. If he is still our dependent, would it matter if his address is in a different state? Why would that be? If so, that would be a definite deal-breaker! We've had major medical expenses this year with his broken leg , surgery, hospitalization and all the follow up and physical therapy. It would cost a fortune if he wasnt covered under our plan!

    As for the car isurance, we did already change his coverage to Tx. Because of that, and the fact that they had to write a separate policy, we lost the multi-car discount on his car. We still get to pay the bill, jsut a higher amount. Swell.

    I'd reall like to hear more about the helath insurance issue though, adn will have to had DH look into it with his company. they do reqquire us to send proof every year that he is still in school and qualifies to be on the insurance, so I want to be careful not to mes this up. Thanks!
  • conyatconyat - Posts: 2,519 Senior Member
    I forgot that was your son who broke his leg. How's he doing?
  • jym626jym626 Registered User Posts: 52,134 Senior Member
    Oh, forgot to mention- he changed his voter registration a long time ago. They let him do that.
  • violadadvioladad Registered User Posts: 6,645 Senior Member
    The issue with the health plan may be size and coverage of the plan, and the number of in plan providers. Large plans like Blue Cross/Shield should not be an issue, smaller plans might be. Best check specifically with your provider.

    Take a peek here as well for other potential insurance issues http://talk.collegeconfidential.com/showthread.php?t=365231
  • jym626jym626 Registered User Posts: 52,134 Senior Member
    Thanks for asking, conyat.
    He is doing remarkably well. Ahhh, the resilience of youth! He still limps a bit but can control it if he consciously thinks about it. He started to jog again a little bit, but that is painful still. The only thing he still really cant do is sit indian style (sorry if that isnt PC, but you know what I mean). I think Marian said she had trouble with that too. Are you out there, Marian??

    They told him at his drs appt yesterday that he can have the screws removed if he wants (his choice). It might possibly help with the range of motion of his hip, though I cant really figure out why that would be, as the screws arent too near the hip socket. If he does have them removed, it would be nice for him to do it this calendar year while we've met our total out-of-pocket expenses on him and it would be covered at 100% in network or out of network!

    As for the insu issue mentioned above, he is on our PPO plan, which has covered him with his nedical bills in Calif (where he broke his leg) and in Tx (where he is). So, I don't want to mess with that. We are with one of the big Blues, if you know what I mean with insurance carriers.

    forgot to mention-- the decision about removing the rod from his femur (in 2 yrs) would also be his. Has anyone done that? Had a rod removed after insertion in the femur? How awful was the recovery?
  • jym626jym626 Registered User Posts: 52,134 Senior Member
    Ah, we cross-posted, violadad. Yes, I read that thread, bue the insu the person in the other thread described is a very different insu- the one he mentioned is the state plan for under insured, limited income families. It is not a national plan, as ours is. And yes, ours is BCBS. As "the blues" are owned by different companies (ours is now owned by Wellpoint) there are sometimes snafoos with other states transmitting the claims back to the home state. We had some issues with that with some of the Calif claims (which is weird as they are also owned by Wellpoint) but I am staying on top of it and have befriended a very nice claims adjuster who is getting the claims reprocessed. But it is a hassle and a lot of work.
  • thisoldmanthisoldman Registered User Posts: 1,045 Senior Member
    Your insurance plans may not necessarily cover your son if he declares a new residency. If he declares new residency, (drivers license, voter registration) he may be deemed a non dependent since he does not intend to further live in your household, even though you provide financial support.

    State income taxes should not be the reason for residency change. The amount he pays is relatively minor when compared to other issues. He could reduce the amount of state tax simply by contributing to a 529 (assuming your state offers a tax incentive).

    Some tax/insurance provisions say a person must be qualified for a full calendar year. So if your son has 1 day of your state and 364 days in another state, there could be taxation in both states. Your question is a common enough question that I imagine, even a mediocre tax advisor can answer quickly.

    We have son who had a summer intern in a state with income tax, as does his resident state. Son paid taxes in both states. DS now in Canadian University and pays provincial income tax, resident state income tax, mandatory medicial insurance, we pay medical insurance, and nonwage income tax which is substantial for a 22 year old. No way around the problem, according to his tax preparers in CA and USA. Son's tax prep bills far exceeds his state and provincial taxes.
  • jym626jym626 Registered User Posts: 52,134 Senior Member
    Thanks, thisoldman. I will forward this on to dh. The 529 we have is based out of a different state (we opened it before our state had one) but I never thought about ds opening his own. However, since he is about to be a college senior, will this work? I suppose he could earmark the contribution to younger bro and we can work out the finances ourselves. Hmmm.. food for thought. Thanks
  • thisoldmanthisoldman Registered User Posts: 1,045 Senior Member
    ^urw. But thank another person who had a tax-wealth problem and consulted others which initiated a question from inheritee, who solicited comments from others until there was as poster who said something else, which I hope will lead you one more step and you will get a, AH-HA, Edison, momemt. How long will it take you? and Why tell DH?
  • coolweathercoolweather Registered User Posts: 5,402 Senior Member
    If your kids want to come back to your state for graduate schools or medical schools then tell them not to change (especially if you are from CA).
  • BayBay Registered User Posts: 12,499 Senior Member
    forgot to mention-- the decision about removing the rod from his femur (in 2 yrs) would also be his. Has anyone done that? Had a rod removed after insertion in the femur? How awful was the recovery?

    I had this surgery when I was a Freshman in college. I literally walked out of the hospital the same day. This was 30 years ago, but the rod had a screw tip at the top, so the orthopod applied some sort of tool, yanked it out, and I was good as new with a couple of stitches about 3/4 in. long in the area at the top of my femur.

    As you said, the surgery was optional, but I chose to do it because the tip of the rod was causing bursitis in my hip. I have had absolutey no complications since.
  • conyatconyat - Posts: 2,519 Senior Member
    Is there any way to combine it with the screw removal? Or does that have to be done now if it's done at all?

    I'm so sorry he's had to go through this. Though this is frivolous compared to all the other issues, I bet it causes him a heck of a problem in airports.
This discussion has been closed.