If a person meets the IRS definition of “full-time student” (was a full-time student for any part of at least five calendar months during the tax year), the person is considered to be a full-time student at any point during the tax year, including the end of the tax year even if the person completed the degree requirements and graduated in May.
No. “Your earned income plus $350” can go as high as the standard deduction, which for a single filer in 2018 is $12k.
Glad I stumbled onto this string. The confusion for me was thinking that the kiddie tax and the tax bracket rate was an either/or situation. But it’s not. It sounds like taxable scholarships are factored in both ways. For my situation, my son has $1750 in taxable scholarships plus $1600-$1800 in earned income from a job. Sounds like he won’t owe anything this year. Next year, he’ll have $3500 in taxable scholarships (because it’s over two semesters) and he’ll have much more earned income due to an on-campus job, likely a summer job, and more internships. So he will probably owe something next year.
I wonder what the tax is on medical students who get a full ride – tuition and R&B AND a stipend? How do they even afford the taxes on that?
Interesting, so a new grad with enough earned income to hit the 12K SD does not suffer a bit by being identified as a dependent on another’s tax return.
Formulating a list of questions for CPA…
My understanding is that tuition remission for professional students is not earned or unearned income.
There was a LOT of discussion about taxing these stipends…but they are for tuition which is a QEE anyway. The taxing of these was, I believe, eliminated in the final bill.
There was a LOT of discussion about this for these students who cannot work.
That may be true depending on individual circumstances, now that personal exemptions have gone away. But, I’m pretty sure there are other credits or deductions that a tax dependent is not eligible for because of the dependent status.
Edited to add: For example, a tax dependent cannot claim the American Opportunity or Lifetime Learning Tax Credits on their own tax return.
@BelknapPoint speaking of AOTC, can you clarify something: folks trying to capture AOTC but also receiving scholarships that exceed tuition are often told to make sure to pay $4k for tuition, not R&B, and treat the scholarship as covering R&B (in cases where scholarship does not specify it is for tuition). Does ‘assignment’ of scholarship dollars this way for purposes of AOTC effectively define a larger share of the scholarship as taxable income, or are these independent? For example: assume a $65k scholarship at a college where tuition is 55k and R&B 15k. With no parent AOTC involved, if I understand this correctly, the student would have 10k of taxable scholarship income, which would be under 12k, so no tax due. Now, if parents claim on their tax return that they paid 4K toward tuition, that would imply that 14k of the scholarship went toward R&B, creating tax due on the 2k over 12k. Is that correct or are the two actions not linked that way?
Sorry to be a bit off topic but this thread will be useful for many and this is a topic I haven’t seen discussed in this context.
The parents wouldn’t claim on their tax return that they paid $4k towards tuition. This would have to be done with their child (the student) claiming on his/her tax return that $14k and not $10k of the scholarship is taxable, thus freeing up $4k of the scholarship money spent on tuition to be used as a qualified expense for the parents to claim the AOTC. This assumes that the child is a tax dependent on the parents’ return.
Got it, thanks for clarifying. So after the first 2k of aotc, parents taking that route will need to compare marginal benefit of partial aotc vs marginal tax rate of kids.
There can be some benefits to the parent continuing to claim the child as a dependent. Even though I lost one child to adulthood and can’t claim her, I will claim my second daughter, and that will qualify me for HOH, her AOTC, and maybe the $500 credit. She’ll still get as much of the $12000 standard deduction as she needs to offset all her earnings. For once, the tax structure is benefiting us.
As always, you point us in the right direction. D’s new employer provides an employer contribution to an HSA. That’s an issue if she’s a dependent.
Yes, the HSA contribution/health care eligibility/tax dependent puzzle is not an easy thing to figure out. Ask me how I know that. When my daughter became a tax dependent, I found out that she was no longer able to be a beneficiary under a parent’s HSA, even she was still eligible to be on the parent’s health plan (until she turns 26). She opened her own HSA, and it was easy enough to back out the previous HSA transactions that shouldn’t have happened, but a lot of these rules aren’t obvious enough to easily follow.
In this case, wouldn’t she still be a dependent (assuming she graduated in May and started the job in July). If she was a student, did she earn enough to support herself for the first 5 months? I believe scholarships/grants/loans are not counted as providing support.
In my case, my daughter started her job at the end of June. We pay for the first month rent (Juy) since she was not paid until end of July. As far as I can tell she is our tax dependent for this year.
There are five IRS tests each of which must be met to qualify a child as a tax dependent. You don’t know anything about my daughter’s situation in order to make any kind of assumption.
In my daughter’s case, she’s definitely supported herself more than I have supported her, even while in school, in 2018. Since graduating in May and starting a job in July (plus she did have a job her last semester in school), she’s made much more than I provided in support, she paid her own rent and insurance, and I really paid very little.
I don’t benefit from claiming her as we used the 4 years of AOTC, she has her own insurance and HSA, needs her own tax benefits. She’ll benefit by not having to file the kiddie tax forms. As I said, for once, the tax scheme works for us.