<p>There are two different issues we’re dealing with -</p>
<p>1) d gets income from a family trust and gets taxed at our rate. If she weren’t a dependent, she would have lower fed taxes.
2) our insurance is an HMO which won’t cover routine or followup stuff at the out of state school. If she isn’t dependent I’m thinking she might be eligible for the “poor persons” individual insurance in the state she’ll be living in.</p>
<p>are there issues I’m completely missing?</p>
<p>Check your car insurance too. It might not cover her if she 's not a dependent. </p>
<p>Are you suggesting that a student who is getting money from a family trust should go on Medicaid in the state in which she goes to college? She would have to change her residency to that state. In addition, she would have to show that she does not have another source of income (you parents) paying her college bills. I would imagine that would be the case for any “poor person’s” insurance. The state of Massachusetts, for example, has insurance for lower income folks as part of their initiative for all to be insured. HOWEVER if you are a college student, you must demonstrate that the college IS your permanent address and that you do not receive support from your parents.</p>
<p>You need to check first to see if this is something that you really CAN do.</p>
<p>Another thing you might consider is changing health insurance carriers to someone who DOES cover your daughter at school…or buy the school health insurance policy which will cover her there.</p>
<p>You also might want to check YOUR tax situation. If she is not a dependent on your taxes, you lose that deduction as well…and your taxes will increase.</p>
<p>My understanding is that the Kiddie tax is NOT based on whether or not child is a dependent, but his/her earned income v. total income.</p>
<p>Thumper – at a certain income level, deduction for dependent phases out.</p>
<p>kayf, as I recall, the rate at which the kid’s income gets taxed is based on both dependency and parental income.</p>
<p>Bunsen, </p>
<p>Look at section 1(g)(1) of the Internal Revenue Code, which defines child for this purpose. Of course if parent doesnt earn much, there wont be any detriment. But not claiming kid as dependent wont get kid out of kiddie tax.</p>
<p>You can look at the health coverage offered via your student’s school, some of them are great and some are very minimal.</p>
<p>My GRAD student was independent and she qualifies for the state low income insurance, any term in which she is employed by the school as a TA, the school pays her premiums for that same low income plan.</p>
<p>If your DD’s trust income is high enough, she may not qualify for a low income plan, but if it is a smaller amount of income, it may just be replacing what she would earn on a student job. If she is a dependent she loses a deduction on her tax return- recalling fuzzy details it is like $3000-5000 she loses if she is a dependent</p>
<p>Go to one of the tax websites and run a return for her both ways and let the computer calculate the tax to determine whether it is worthwhile.</p>
<p>But if you are paying the tuition, etc, she may not be eligible to be independent.</p>
<p>kayf, thanks, Form 8615 has an extremely confusing checkbox that I couldn’t be sure about. Sounds like even if she’s paying her own way, she gets hit with Kiddie Tax.</p>
<p>Thumper, thanks for the reminder about car insurance. Blue Cross in Mn, where she’ll be going, has a good individual health plan for young adults - it basically covers the first $1k, then picks up major medical after a large deductible. </p>
<p>The family trust just gives her college money (and we’re very glad for that). It was set up to cover 4 yrs, at this point, it’ll make it about 3, LOL. With the trust money paying her college bills, dropping her as a dependent seemed like it might make sense if it got her out of kiddie tax, too. But…</p>
<p>Thanks everyone for your help.</p>
<p>The rules on the kiddie tax have changed over the last few years - it is a lot harder to get taxed at the lower rate than it used to be… Before exploring anything else, I’d check with your accountant or read up on the rules.</p>
<p>Read your health insurance again. There is no requirement on my group health insurance that my kids remain my dependants for IRS purposes. Simply that they live with me and are attending college if over age 19.</p>
<p>Agreed…check YOUR health insurance. My kids have to be dependents to be covered on MY plan. YMMV.</p>
<p>My health insurance also says that they must be a dependent…</p>
<p>bingle - The above suggestions are good. Perhaps there are a couple other considerations. I don’t know how the family trust is written, but it might be possible to make a couple changes that effectively defer recognition of income. (E.g., sell some dividend producing stocks and buy stocks that don’t pay a dividend but are likely to appreciate as the economy improves.) Regardless, you may want to keep your D as a dependent for the sole reason that once she’s legally independent, well there’s no switching her back!</p>
<p>
does it specify a dependent on your federal income tax?</p>
<p>One can be a “dependent” without being claimed as a dependent on their income tax.</p>
<p>
Ours states that they must be dependent on us, AND be claimed on our tax return. We also can be asked to provide proof.</p>
<p>My insurance says the child must be under 24 and going to school half or more to be covered. That is why I didn’t have to take the school’s insurance, he was fully covered in NJ, same as here. (anthem)</p>
<p>I tried entering myself not as a dependent when I was filing taxes online, just to see what would happen. If I were not a dependent, I would save a significant amount of money. However, the amount of money that my parents save with me as a dependent is much greater than the amount I would save if I were not. So they helped me out when I ended up owing some tax money.</p>
<p>You didn’t mention this in your list of concerns, but also bear in mind that even if you list your D as an independent for tax purposes, she will still be considered a dependent on the FAFSA forms while she is an undergrad student.</p>
<p>There are some ways that money paid directly to a college for tuition is not taxable (I’m not referencing the standard tuition tax credits…but gifting regulations.) Do you have an accountant or financial planner who can figure out if there is anything that can be done with the money being used from the trust so that it is not taxable?</p>