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

Twoin18Twoin18 Registered User Posts: 1,094 Senior Member
D18 is at an OOS public in a state with a much lower income tax rate (and the new standard $12000 personal allowance). She'll have taxable scholarships from that state which wouldn't exceed her personal allowance there. But our home state (CA) didn't conform to the new federal tax code and has a much lower personal allowance (and I'm assuming she could presumably be liable to kiddie tax on her scholarship as unearned income at a state level, which would be quite a lot of money, perhaps $1000 per year in 2019).

However, she is staying at school this summer and probably the next few summers as well and will have an apartment there for next year and subsequent years - she'll spend less than 30 days in CA this tax year and all the work she does for her summer job will be out of state. She already registered to vote in the other state when she turned 18, and can change her drivers license, addresses on bank accounts, etc. (although hasn't done so yet and she has borrowed our car to take to college, which still has a CA registration). I would be quite surprised if she moved back to CA after college, since its so expensive here.

So I'd be keen to hear advice from other people whose kids moved their tax residency to another state while in college. What steps did you take, when did you do it, how did it work out?
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Replies to: Did your kid get tax residency at their OOS school? If so when and how?

  • momofsenior1momofsenior1 Registered User Posts: 4,573 Senior Member
    Most states do not allow students to declare residency while they are students. What state?
  • happymomof1happymomof1 Registered User Posts: 28,871 Senior Member
    Run the numbers both ways, and see what the results look like.
  • Twoin18Twoin18 Registered User Posts: 1,094 Senior Member
    edited March 5
    @momofsenior1 Utah allows students to become resident for tuition purposes (by spending 336 days there in a 12 month period, not being declared as a dependent on someone else's tax return and changing your voter registration and driver's license). But that's not my question (it is unnecessary because of her scholarship), I'm talking about tax residency. Any state is happy for you to become tax resident and pay them more taxes, it's the state you are leaving that doesn't want you to stop paying taxes there.

    So has anyone's kid shifted their tax residency during college? What are the consequences and requirements? Can they still be declared as a dependent in another state for example (I assume so)? And when did they do it, and is there some overt action that they took to establish that date (other than simply getting on a plane).
  • Eeyore123Eeyore123 Registered User Posts: 1,054 Senior Member
    edited March 5
    Here is the answer for Ohio as an example:
    For Ohio residents going away to college, you may be wondering what your filing requirements are. You would still need to file an Ohio Individual Income Tax Return, regardless of where you go to college. As long as you are an Ohio resident you will still need to file. If you are away at college during the year, but come home for the summers, you are still an Ohio resident, and will need to file state and local taxes as if you lived with your parents the whole year. You will file your state, school district and local taxes based on your home address, not your apartment or dorm at school.
    However, if you stay at college for the entire year because you found a job at college or you just don’t intend moving back home, then you would file state, school district and local taxes based on your college address. If you were to go to college out of state and live there the entire year with no plans on coming back to Ohio, you would be considered a resident of that state and would not have to file for Ohio. For more information, see the Going to College page under Filing My Ohio Income Tax Return.
    https://www.tax.ohio.gov/taxeducation/going_to_college.aspx
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    Most states do not allow students to declare residency while they are students. What state?

    Don't confuse legal residency, which is what OP is asking about, and being eligible for in-state tuition at public colleges.

    OP states that his/her daughter has registered to vote in the state where daughter attends college, which generally means that the daughter has declared that state to be her state of legal residence. (I say "generally" because each state can interpret this differently and have different standards for establishing legal residency, but you typically have to be a legal resident of a state to register to vote in that state.) Also, generally, becoming a legal resident of a state means that if you want to drive you must obtain a driver's license from your state of legal residence, and your vehicles that are kept in that state must be registered in that state. More specifically for OP's question, it also means that for state income tax purposes you will be considered a resident with the associated tax obligations and privileges.
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    What are the consequences and requirements?

    Generally, the consequences are that you now have the same privileges and obligations as any other legal resident of the state. From a taxpayer perspective, the requirements are that you now file state tax forms as a resident, and not as a non-resident (although for the first year, you will probably need to file as a part-year resident, depending on how the state's tax laws work).

    Can they still be declared as a dependent in another state for example (I assume so)?

    Are you asking about being claimed as a dependent on someone else's federal tax return?

    And when did they do it, and is there some overt action that they took to establish that date (other than simply getting on a plane).

    Generally, it's when the first affirmative action is taken to change the state of legal residence. Based on the information you have provided in your daughter's case, it sounds like that happened when your daughter registered to vote in the new state.
  • Twoin18Twoin18 Registered User Posts: 1,094 Senior Member
    Thanks @BelknapPoint. She turned 18 last November and registered to vote in Utah then (actually she may have registered before that date to be effective from her birthday). So it sounds like she should be a part-year resident of CA up to the date she registered (not when she turned 18 if she did it beforehand), and any scholarship income from Utah in 2018 would need to be apportioned between the states. Is scholarship (room and board) income deemed received on the first day of school (or the date payment would otherwise have been due for the whole semester) or ratably over the semester (so part is allocated to the time she was a CA resident and part to the time she was not)?

    She will still be our dependent (we are CA residents) for 2018 and potentially for 2019 as well, since we don't have any reason not to claim her as a dependent on our tax returns (federal and state) and we do provide more than half of her support (to receive in-state tuition in Utah you need to not be claimed as a dependent, even if you are eligible to be claimed on your parents' return, but that is not necessary in our situation). I assume that's independent of her residency and would not be relevant to determining her status?

    I have asked her to change her drivers license, but I don't particularly want to transfer the car to her name or register the car in Utah (it is our car not hers and we have registered it in CA and insured it for the entire family to drive), so hopefully that won't be an issue. Presumably she should also make sure that the address on things like bank accounts is her Utah address.
  • momofsenior1momofsenior1 Registered User Posts: 4,573 Senior Member
    OP - Totally misread your post! Sorry! Would love to make that happen for our DD but she'll be working in various states for her co-op and will be moving dorms every semester. No way to get a driver's license in her new state even though she's registered to vote and has her bank account there.
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    Is scholarship (room and board) income deemed received on the first day of school (or the date payment would otherwise have been due for the whole semester) or ratably over the semester (so part is allocated to the time she was a CA resident and part to the time she was not)?

    If the billing statement from the school provides a date that the scholarship was applied to her account, I would use that date as the day of receipt, and then proceed with completing part-year resident tax returns for both CA and UT using the date of registering to vote as the break from CA to UT.

    She will still be our dependent (we are CA residents) for 2018 and potentially for 2019 as well, since we don't have any reason not to claim her as a dependent on our tax returns (federal and state) and we do provide more than half of her support (to receive in-state tuition in Utah you need to not be claimed as a dependent, even if you are eligible to be claimed on your parents' return, but that is not necessary in our situation).

    The support test is only one part of determining federal tax dependency. I think in your daughter's case, the critical factor in 2018 will be whether or not she lived with you for more than half the year. Before she became a legal resident of UT, any temporary absence from CA as a student will count as if she was living with you. But once she registered to vote and became a legal resident of UT, it's hard to make an argument that after that event any time at school in UT is a "temporary absence" from your home in CA, especially with your earlier statement that you "would be quite surprised if she moved back to CA after college." If she remains a legal resident of UT, it will probably not be possible to claim her as a tax dependent for federal purposes in 2019. See the federal dependency rules on the 1040 instructions, starting on page 20:

    https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    Would love to make that happen for our DD but she'll be working in various states for her co-op and will be moving dorms every semester. No way to get a driver's license in her new state even though she's registered to vote and has her bank account there.

    She can only be a legal resident of one state at a time. If she registered to vote in the state where she attends college, that should generally be her state of legal residence, no matter what other states she is doing a co-op in and no matter what dorm she lives in. What makes it impossible to get a driver's license in her new state? Of course, if she's not driving, she doesn't need a driver's license, but if she has one already from another state, she may be legally required to trade it in for a license from her new state if she is going to be driving.
  • thumper1thumper1 Registered User Posts: 74,383 Senior Member
    Right! One year, one of our kids worked in 5 states...maybe it was only 4. Regardless...he was only a resident of one of those states. In his case, it happened to be our home state...he was a full time student and at the time, the tax advantage for us declaring him as a dependent was decent.

    He filed his federal taxes using our address. Our state taxes were filed as a resident...and the other 3 or 4 had to be filed as non-resident. It was a PITA...but it had to be done as all of his states required filing.
  • Twoin18Twoin18 Registered User Posts: 1,094 Senior Member
    edited March 5
    "If the billing statement from the school provides a date that the scholarship was applied to her account, I would use that date as the day of receipt"

    The statement shows the room and board charges as being billed on the first day of each calendar month during the semester. I'll have to find out if the scholarship was applied in the same way. Hopefully that's the case and then we can separate the scholarship payments before and after the voter registration date.

    "But once she registered to vote and became a legal resident of UT, it's hard to make an argument that after that event any time at school in UT is a "temporary absence" from your home in CA"

    So in 2019 will she be able to claim the refundable part of the AOTC (if she pays for summer session tuition using non-529 funds), even if that payment is made with money she receives from us and we continue to provide more than half her support?
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    So in 2019 will she be able to claim the refundable part of the AOTC (if she pays for summer session tuition using non-529 funds), even if that payment is made with money she receives from us and we continue to provide more than half her support?

    Eligibility for claiming an education tax credit on any particular tax return, including eligibility for either the refundable or non-refundable parts of the AOTC, is a whole different discussion. There was a recent thread on that subject here in the FA & Scholarships forum. Read the AOTC chapter in IRS pub 970 for more information on eligibility.

    https://www.irs.gov/pub/irs-pdf/p970.pdf
  • Twoin18Twoin18 Registered User Posts: 1,094 Senior Member
    edited March 5
    "Read the AOTC chapter in IRS pub 970 for more information on eligibility."

    Yep, did that. So if she pays some tuition expenses out of her bank account in 2019, and is not claimed as a dependent on our tax return, it appears that she will be able to claim the refundable part of the AOTC.

    I note that the criteria is "not claimed" as a dependent (elsewhere "not listed"), instead of "not eligible" to be claimed as a dependent (which I hadn't realized). That appears to suggest that in some circumstances (not those of my D but potentially my S) where the parent's income exceeds the qualifying MAGI the parent can choose between getting the $500 federal credit by filing with your kid as a dependent and choosing not to file with the kid as a dependent so that they can claim the refundable AOTC for themselves (assuming that the tuition money came from the kid's bank account and not from a 529 since the eligibility rule refers to "*you* pay QEE..."). If that's correct, I'm surprised more people don't do it that way...
  • BelknapPointBelknapPoint Registered User Posts: 4,131 Senior Member
    So in 2019 will she be able to claim the refundable part of the AOTC (if she pays for summer session tuition using non-529 funds), even if that payment is made with money she receives from us and we continue to provide more than half her support?

    To add some more information:

    -Payments of QEE by you or anyone else for your daughter's benefit, either directly or through your daughter, are treated as paid by your daughter as long as she is not claimed as a dependent on someone else's tax return. See the instructions for IRS form 8863, pg. 2:

    https://www.irs.gov/pub/irs-pdf/i8863.pdf

    I note that the criteria is "not claimed" as a dependent (elsewhere "not listed"), instead of "not eligible" to be claimed as a dependent (which I hadn't realized). That appears to suggest that in some circumstances (not those of my D but potentially my S) where the parent's income exceeds the qualifying MAGI the parent can choose between getting the $500 federal credit by filing with your kid as a dependent and choosing not to file with the kid as a dependent so that they can claim the refundable AOTC for themselves (assuming that the tuition money came from the kid's bank account and not from a 529 since the eligibility rule refers to "*you* pay QEE..."). If that's correct, I'm surprised more people don't do it that way...

    -In order to claim the refundable part of the AOTC on her own tax return, your daughter's earned income cannot be less than one-half of her support. That's probably a major reason why more people don't do it that way. See page 6 of the form 8863 instructions linked above. The IRS definition of "earned income" for claiming the refundable part of the AOTC was a matter of discussion in the thread I mentioned earlier.
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