To get all the important details you need on benefits of not claiming college student as dependent, what is considered support for a dependent, and lots more All you have to do is to please keep on reading this post from college learners. Always ensure you come back for all the latest information that you need with zero stress.
If you’re wondering whether your student loan payments count as support for your dependent, the answer is yes.
In order to qualify as a dependent for federal tax purposes, an individual must pass all of the following tests:
1) Tests for being a qualifying child, which include:
a) Relationship test—child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals (for example cousins).
b) Residence test—child must live with you for more than half the year and not provide more than half of his/her own support during the year.
c) Age test—you must provide over half of the child’s support while under age 19 at the end of the year (or under age 24 at the end of the year if a full-time student).
2) Tests for being a qualifying relative: The person must pass either an income test or support test in order to be considered your dependent.
Student loans don’t constitute income. A dependent’s income must be below the $4,300 threshold only if the dependent is a qualifying relative. Since this person is your child, the income requirement might not matter.
However, the student loans are considered support to test if the person qualifies as your dependent. Usually, the cost of education is considered a form of support. If you, as the parent, take out a loan to pay for your child’s education, you have provided the support.
On the other hand, support is considered as coming from the student if both of these are true:
Your child takes out the loan.
Your child is the sole signer of the loan and is legally responsible for repaying it.
If at least one parent co-signs the loan, the loan is considered support provided by the parent. If a lender requires a parent to sign a loan, the loan proceeds are considered to be support from the parent.
For your child to be a dependent under the qualifying child rule, your child must not provide more than half the child’s own support. So if your child has large student loans in his name alone, your child might be supporting himself too much to be your dependent.
For your child to be a dependent under the qualifying relative rule, you must provide more than half your child’s support. The more support there is from sources outside of you, the more difficult it’ll be for you to meet that threshold.
Scholarshub Contents Table
benefits of not claiming college student as dependent
Understandably, many parents get in the habit of claiming their children as dependents on their federal tax returns. You generally may do so as long as your child is either under age 19 (nonstudents) or under age 24 (students). But there is a reason to not claim your child as a dependent – and it has everything to do with higher education.
CREDITS AND PHASEOUTS
The two primary college-funding tax credits available are the American Opportunity Tax Credit and the Lifetime Learning credit. The American Opportunity Tax Credit now permanently allows eligible taxpayers to take an annual credit of up to $2,500 for the first four years of postsecondary education. Meanwhile, the Lifetime Learning credit provides up to $2,000 in relief to those eligible. (You can’t claim both credits in the same year for the same student.)
But these credits are subject to “phase-outs” that limit eligibility for higher-income taxpayers. For example, for 2020, eligibility for the American Opportunity credit begins to phase out for taxpayers with modified adjusted gross incomes (MAGIs) beyond $80,000 (single filers) or $160,000 (married couples filing jointly). Similarly, eligibility for the Lifetime Learning Credit begins to phase out for taxpayers with MAGIs beyond $59,000 (single) or $118,000 (joint filers).
If your income disqualifies you from claiming these credits, your child’s income probably doesn’t disqualify him or her. Therefore, your child may be able to report payment of education expenses for tax purposes and then claim one of the credits – but only if you don’t claim him or her as a dependent. This credit can then be used to offset some of the tax that the child may have on their return, but is not refundable.
Under this scenario, the child’s tax benefit typically outweighs the value of the child tax credit for the parents. Why? Because an income-based phase-out may reduce or eliminate the benefit of the child tax credit even if you did claim your child as a dependent. For 2020, the phase-out starting points for the child tax credit are adjusted gross incomes of $200,000 (singles) and $400,000 (joint filers).
THE RIGHT CALL
If your dependency exemption is phased out, it will probably make sense not to claim your child as a dependent so he or she can grab a tax credit. But if your child tax credit isn’t phased out or is only partially phased out, the decision becomes trickier. We can help you make the right call.
what is considered support for a dependent
What qualifies as support for a dependent?
For the purpose of determining if someone is your dependent, total support includes the amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Expenses not particular to any one individual must be divided between all the members of the household.
Note that welfare, food stamps, and housing provided by the state are still considered support provided by the state.
Not included in total support are federal, state, and local taxes, social security and Medicare taxes, life insurance premiums, funeral expenses, scholarships, Survivors’ and Dependents’ Educational Assistance payments.
Remember that in order for someone to be considered your qualifying child, the person in question must not have provided more than half of his or her own support for the year and in order for someone to be considered your qualifying relative, you must have provided more than half of that person’s total support for the year.
dependent living expenses
Dependent expenses for Lewis & Clark programs are determined by the Office of Financial Aid in consultation with International Students & Scholars. The expenses for dependents are the same in all Lewis & Clark programs.
Dependent expenses are determined as follows: Take the published, off-campus room costs on a monthly basis, halve it, and multiply by 9 months. Take the published, off-campus board costs on a monthly basis and multiply by 9 months. Add the published incidental costs for the first dependent. Add the published insurance cost for the first dependent. Each additional dependent is charged the cost of board, plus 1/2 the cost of incidentals, plus insurance. Not included are transportation costs to travel to the U.S. and living expenses during the summer break.
Dependent expenses for the 2022-23 academic year are listed below:
Each Additional Dependent(s)
Tuition & Fees
Varies by program
$10,494 ($1,166/mo X 9 mo)
$5,256 ($584/mo X 9 mo)
$4,950 ($550/mo X 9 mo)
$1,600 ($800/sem X 2 sem)
$4,500 ($500/mo X 9 mo)
Tuition + $29,800
$7,731 + health insurance cost
For the 2022-23 academic year, the cost of the first dependent is $17,953. The cost for a second dependent would be an additional $7,731 (plus health insurance cost). International students and scholars who plan to have family members accompany them are required to prove they have resources at the levels listed above.
Note that health insurance is required for all international students and their dependents. Students who prefer to purchase health insurance through a private company may do so as long as they show proof of insurance coverage at acceptable levels. Dependent insurance costs are based on mandatory insurance for J-2 status dependents. This figure is an estimate only. F-1 status dependent costs may be higher or lower.
As you can see, there’s a lot of information to consider when deciding whether or not student loans count as support for a dependent. While you may be tempted to think that they don’t, there are many factors that can come into play in determining whether or not this is the case. The best way to find out whether or not your student loan payments will affect your eligibility for dependent care credit is by getting in touch with us today!