Welcome to College Confidential!

The leading college-bound community on the web

Sign Up For Free

Join for FREE, and start talking with other members, weighing in on community discussions, and more.

Also, by registering and logging in you'll see fewer ads and pesky welcome messages (like this one!)

As a CC member, you can:

  • Reply to threads, and start your own.
  • Post reviews of your campus visits.
  • Find hundreds of pages of informative articles.
  • Search from over 3 million scholarships.

Did your kid get tax residency at their OOS school? If so when and how?

24

Replies to: Did your kid get tax residency at their OOS school? If so when and how?

  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    OK, that's what I had missed. It's only refundable for a student if they provide their own support.

    One last question, being self-employed, we have been able to take an above the line deduction for health insurance premiums. I assume that will no longer be an option to pay the premiums for my D once she isn't a dependent?
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    edited March 5
    One last question, being self-employed, we have been able to take an above the line deduction for health insurance premiums. I assume that will no longer be an option to pay the premiums for my D once she isn't a dependent?

    Hmmm... I don't want to think that you are relying on advice without verifying, and I'm not familiar with your immediate situation, but... I have a kid who is tax independent but is still covered under our (parents) health insurance because she is under 26. The premiums are paid part by a parent's employer and part by a parent through a cafeteria plan (pre-tax), so it differs from your self-employed situation with an above-the-line deduction. That's the best I can do. There are similarities, but I don't know the answer for your specific situation.

    Edited to add:

    See page 90 of the 1040 instructions regarding the self-employed health insurance deduction on line 29 of schedule 1.

    Line 29
    Self-Employed Health Insurance Deduction
    You may be able to deduct the amount you paid for health insurance for your-self, your spouse, and your dependents. The insurance also can cover your child who was under age 27 at the end of 2018, even if the child wasn't your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child (defined in Who Qualifies as Your Dependent in the Instructions for Form 1040).[I/]
  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    edited March 5
    Thanks so much. That raises the complication that if the kid is covered on the same plan as the parents it is definitely deductible, but if it's a separate plan (through her college in this case) then it might not be. Our situation is a bit more like yours (paid through a single employee C corporation not a Sch C, but one that doesn't offer a health plan just reimburses expenses/premiums), I was just trying to short circuit it by saying we are self employed.
  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    Found the Section 125 guidance (https://www.irs.gov/publications/p15b#en_US_2019_publink1000193641) which simply states very broadly:

    "Accident or health plan. This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness. The plan may be insured or noninsured and doesn't need to be in writing."

    So it would appear that a C corp can use essentially any arrangement they want to provide healthcare for employees' children under the age of 27 with pre-tax dollars.
  • twoinanddonetwoinanddone Registered User Posts: 20,579 Senior Member
    edited March 6
    Your child does not need to be a dependent to be insured under your health care. Even a married child with a child of her own can still be covered by your medical plan, but the husband and the grandchild are not covered. My niece is still on her father's policy asn she is completely independent, lives in DC, works in DC, is registered to vote in DC, pays her own taxes in DC, yet is on her father's policy because it is cheaper (free for her) and better coverage. When she turns 26 next year, she's off.

    The child doesn't need to be a resident of your same state to be a dependent for IRS purposes. Many people take their children who live with another parent in another state as a dependent; residency of the child is not a requirement for the IRS.

    A state return may be different, but I don't see why she can't be a legal resident of Utah yet still be your dependent. If she's a resident of Utah, earns all her income in Utah, why would she be a resident of California and have to file in California? The IRS allows you to claim a child away at college as if she lived with you for all 12 months.
  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    edited March 6
    "Many people take their children who live with another parent in another state as a dependent; residency of the child is not a requirement for the IRS."

    Not according to the IRS guidance @BelknapPoint posted earlier. There are special rules for children of separated or divorced parents, but otherwise any absence must be "temporary". If your child has moved her (permanent) residency to Utah, it's hard to claim her absence from California is temporary. Indeed if her absence from CA is temporary then (except for certain long term employment contracts) she would remain domiciled there and subject to CA taxes on her worldwide income (see page 6 of https://www.ftb.ca.gov/forms/2018/18_1031.pdf) which was where I started with this.

    It seems many people's kids may register to vote in another state while away at college without necessarily considering that to be an indication that they intend to permanently reside in the state where their college is located. But now we are into questions of eligibility to vote, not taxes, viz (per http://www.utahcounty.gov/Dept/ClerkAud/Elections/VoterRegistration.html):

    To register to vote in Utah, you must :
    Be a citizen of the United States of America
    Have resided in Utah for 30 days before the election
    Be at least 18 years old on or before the next election
    Not be a convicted felon currently incarcerated for the commission of a felony
  • twoinanddonetwoinanddone Registered User Posts: 20,579 Senior Member
    Have resided in Utah for 30 days before the election

    That makes one a Utah resident (registering to vote states you are a resident). Declaring that she's a resident, which she'd have had to do to vote, may trigger other requirements like getting a new driver's license and also subject her to jury duty.

    Now if she wants to switch back to California residency, she can easily register to vote in California. You can keep switching the registration back and forth because you only need to be a resident for 30 days before the election.
  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    And the definition of resident: "You are considered a resident of Utah if your principal place of residence is in the state and you have the intention of making your residence here permanent or indefinite." (per https://voteinfo.utah.gov/).

    I am intrigued about the broad brush statements apparently containing misinformation posted on websites that encourage students to vote (e.g the FAQ here https://www.bestcolleges.com/resources/voting-in-college/ stating that "where you vote will not impact your dependency status. Usually the IRS will consider you a dependent if your parents are paying for more than half of your expenses per year") about students voting while attending college OOS. I reviewed the details for a handful of states and couldn't find any that didn't indicate either implicitly or explicitly that you need to be a permanent resident of the state to vote there.
  • twoinanddonetwoinanddone Registered User Posts: 20,579 Senior Member
    Yes, the voter groups are, IMO, misinterpreting the supreme court case. I think the case was making it easier for student to establish residency to vote, but that they have to intend to be residents of that state to register, assuming all responsibilities like voting, getting a license, paying taxes, etc. I do not believe the court intended for students to be residents ONLY to vote and then immediately revert to the prior state as a resident, but to make it easier for those living in dorms or other short term housing situations to register to vote as residents of the new town/state.

    The person has to choose, and choosing to be a resident of the new state might have consequences in the old state.
  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    edited March 6
    @twoinanddone I don't understand your comment that "I don't see why she can't be a legal resident of Utah yet still be your dependent". You can only be a legal resident of Utah (for example to vote there) if "your principal place of residence is in the state and you have the intention of making your residence here permanent or indefinite".

    In that case (apart from in the first year of college since that doesn't start until August) she would not qualify for the fifth and final part of the "do you have a qualifying child" test ("Who lived with you for more than half of 2018") or the Exception to time lived with you ("Temporary absences by you or the other person for special circumstances, such as school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the person lived with you") because the absence would not be temporary (it is "permanent or indefinite"). See https://www.irs.gov/pub/irs-pdf/i1040gi.pdf at pages 20-23.

    Incidentally, this would appear to be the rationale behind why you can't be claimed as a dependent on your parents' tax return if you want to establish residency in Utah for tuition purposes - you can't be both a permanent resident of Utah and live with your parents OOS for all but temporary absences.
  • twoinanddonetwoinanddone Registered User Posts: 20,579 Senior Member
    Because the IRS says you can still claim the child. Temporary can be 4 years. I do know college kids who never 'come home' during summers. I didn't.

    If she doesn't earn any income in California, she doesn't have to file a return there. All you are getting by claiming her as a dependent is, maybe, a $500 credit. Is it worth it to you? If not, the decision to become a Utah resident is easy.
  • Twoin18Twoin18 Registered User Posts: 1,093 Senior Member
    Yes "Temporary can be 4 years". But then she would not be a "legal resident" of Utah. She would be a permanent resident of CA and have to pay CA tax on all income (including her taxable scholarships) whatever the source.

    If CA had conformed to the new federal $12,000 personal deduction we would be better off getting the $500 credit with her as a dependent, but with a much lower deduction in CA, it will probably be better (and definitely simpler) the other way round. And in the long term, better to escape the CA tax net now rather than later (for example if she goes abroad after college).
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    Because the IRS says you can still claim the child. Temporary can be 4 years.

    In the case of OP's daughter, I obviously disagree. She registered to vote in UT, and in doing so she indicated an intention to make UT her permanent or indefinite residence. This is incompatible with her residence in UT being temporary, as allowed by the IRS so that she can properly be claimed as a dependent on someone else's tax return.
  • bluebayoubluebayou Registered User Posts: 25,939 Senior Member
    edited March 6
    Twoin: if you are only inquiring about your D's state income tax. California will not tax an out of state scholarship. Nor will CA tax a summer job when 100% of the earnings are out of state.

    All one has to do is file as a Part-time Resident (540NR) and show all of the earning in the 'Other' state column. I'm sure Utah has a similar form.

    OTOH, if your goal is to obtain instate residency for tuitions purposes.....
  • natty1988natty1988 Registered User Posts: 235 Junior Member
    How common is it to declare residency in the state you attend college?

    My D went out of state for college and didn't declare residency, because she wasn't sure she would stay there after graduation.
Sign In or Register to comment.