Obviously, I did not realize that. Oh, this is going to be fun. Let’s hope the free HRB software gets it all right! (and still not sure what to do with non-dependent.)
My educated guess at first blush is that the kiddie tax no longer applies, so ordinary rules for the taxation of unearned income apply.
Income from a job does not affect FAFSA EFC dollar for dollar.
First of all the dependent student gets an income protection amount of $6,660 (2019/20 EFC formula).
Then federal tax paid, state tax and soc sec tax is deducted from income.
Anything above that is assessed at 50% towards FAFSA EFC (dependent student).
But taxable scholarships that were reported on tax return as part of AGI are not counted towards student income for FAFSA. There is a question on the FAFSA that asks about this.
Also federal work study income is subtracted from available income on FAFSA.
Here are the rules for determining whether or not form 8615 must be used:
*Form 8615 must be filed for anyone who meets all of the following conditions.
- You had more than $2,100 of unearned income.
- You are required to file a tax return.
- You were either: a. Under age 18 at the end of 2018, b. Age 18 at the end of 2018 and didn’t have earned income that was more than half of your support, or c. A full-time student at least age 19 and under age 24 at the end of 2018 and didn’t have earned income that was more than half of your support.
- At least one of your parents was alive at the end of 2018.
- You don’t file a joint return for 2018.*
In the past, a dependent student would only have had a standard deduction of about $6,350. And kiddie tax made the net uneaned income over $2,100 subject to highest parent marginal tax rate. That would not have been 10% in most cases.
I thought they did away with with the dependent deduction (at least for kids17 years and older)??
Exemptions for dependents went away, but there are new/better tax credits available for dependents/children.
Yes, as far as the term “Non-Qualified Educational Expense” applies to grants and scholarships. (The term has a different meaning when used for 529 expenses, so be careful.)
@BelknapPoint I did find that list on the IRS site. Will not meet qualification 3 ©, so no 8615.
A parent can get a $500 credit for claiming a dependent over 17 years old as a qualifying child/qualifying relative. In many cases, as with the student not having to pay the kiddie tax, it might be better to not be a dependent. Whether the child is still a dependent is determined by IRS definition.
My daughter who graduated in May does not meet the definition as she is no longer a full time student so doesn’t meet the definition of qualifying child, and made more than $4050 so can’t be a qualifying relative. I still have my other child.
A child who graduated in May and was a full-time student from January into May would still qualify as a full-time student for the tax year under the IRS rules.
*Student defined. To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year:
- A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or
- A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency. The 5 calendar months don’t have to be consecutive.*
Of course, there are other tests that must also be met to claim a qualifying child or qualifying relative.
@BelknapPoint are those new better credits available to everyone or are there income limits on them?
Thank you for this thread. Kid2 was accepted to a school that meets 100% need, and the FA package was fantastic. I knew there would be taxes to pay, and this thread better prepares us for taxes.Kid 2 plans to work 2 jobs this summer, and we’ll need to number crunch so that when the W4 is completed, the correct withholding is applied, even if 2018 taxes will not be as high since it’s just fall term. So grateful for this forum.
All the particulars are in the 2018 instructions for form 1040 (start on page 20 for what you are asking about):
Thanks for the link! Looks like there is an income cap on those new and better credits
There are income limits and phaseout zones for the 2018 Child Tax Credit and Credit for Other Dependents, but what you have posted is not accurate. The phaseout starts at $400k for married filing joint filers, and $200k for all other filing statuses. There is a significantly higher income allowance with the new credits than there was under the previous tax law, and the Child Tax Credit is also higher (it doubled from 2017 to 2018).
Use the worksheet that starts on pg. 42 of the 1040 instructions that I provided a link for above.
Edited to add: the income limits you posted are for the 2018 Earned Income Tax Credit.
@BelknapPoint how is it not accurate? I copy and pasted from page 47 from the link you posted.
The income numbers you posted are for the Earned Income Tax Credit, not the Child or Dependent Tax Credits.
I think those limits posted in #55 are for EITC.
the definition for qualifying child says “At the end of the filing year, your child was younger than you… younger than 24 and a full-time student.”
My daughter will be 22 at the end of the year, but no longer a full time student. She doesn’t meet a number of the other requirements either (supported herself, moved out in July) so I’m not worried about it, but I don’t think I could take her as she was not a full time student at the end of the year.
Ok, another one. For someone claimed as a dependent, I keep reading that
“Your standard deduction may be reduced if you are claimed as a dependent on another person’s tax return. If you were another person’s dependent during a Tax Year, your standard deduction will generally be limited to the greater of $1,050 or your earned income plus $350.”
So are we wrong in assuming that our dependent college students get the 12K standard deduction?