You worked hard to help your child get into college. Now there are tax credits, scholarships, and loan deductions that you haven’t had to deal with before.
If your college student meets the IRS guidelines, you can claim them as a dependent. Some of the requirements include:
- The student must be related to you by blood, adoption or fostering, under 19 or under 24 if a full-time student (no age limit if permanently and totally disabled)
- They live with you for more than half the year (with exceptions)
- You do not provide more than half of their own financial support.
If this is your first time filing taxes since your child went off to college, we’ve answered some of the questions you may be asking this tax season.
Rules for claiming college students as dependents
A dependent is someone whose income and care was primarily provided by a taxpayer during the year. When filing a tax return, claiming a dependent can reduce your tax liability through deductions and credits available to taxpayers with dependents.
The IRS has a specific list of requirements that they use to determine dependent status. If your child meets these requirements and is a full-time college student, you can claim them as a dependent until they are 24. If they are working while in school, you must still provide more than half of their financial support to claim them.
Be aware that if your student meets any of the filing requirements below, they will need to file their own return. But you may still be able to claim them as a dependent even if they file their own return.
If your student is single, they are usually required to file a federal return if any of the following applies:
- They have earned income of more than $12,550
- They have unearned income from interest, dividends, or capital gains of more than $1,100
If your student is married, they are usually required to file a federal return if any of the following applies:
- They have earned income of more than $12,550
- They have gross income of $5 or more and their spouse itemizes their deductions
- They have unearned income from interest, dividends, or capital gains of more than $1,100
See IRS Publication 929 for more information on tax rules for children and dependents.
Can I claim my part-time college student as a dependent?
Yes, you can claim a part-time college student as a dependent if they meet the requirements for a qualifying dependent or qualifying child. A part-time college student can only be claimed as a dependent if they are under 19 years old.
However, the age limit for dependents is extended if your dependent is considered a full-time student. If your dependent is a full-time student, they can be claimed up to 24 years old.
Potential pros and cons of claiming a college student as a dependent
When deciding whether to claim a college student as a dependent on your tax return, there are several factors you may consider. Every family dynamic and tax situation is unique. This list serves as a guide to help you start considering what is best for you and your college student.
Potential pros:
- Tax credits & deductions: You may be eligible for education tax credits, such as the American Opportunity Tax Credit or the Lifetime Learning Credit, which can significantly reduce your tax bill. There are other common dependent-related tax breaks to consider as well – like the Child Tax Credit.
- Head of household filing status: If you file as head of household and are financially supporting a dependent in college, you may choose to continue claiming your dependent to maintain your status as head of household. This can lead to tax benefits, including a lower tax rate and higher standard deduction than filing as single.
Potential cons:
- Income limits: There may be instances when your student could benefit from claiming a tax credit on their own tax return. If you claim them as a dependent, they lose this opportunity.
- Impact on financial aid: The Free Application for Federal Student Aid (FAFSA) considers income when applying for financial aid. Whether you claim your student as a dependent or not could have a significant impact on the aid they receive.
Who should claim education credits?
There are several qualifications to note when considering education credits like the American Opportunity Credit or the Lifetime Learning Credit. By claiming your college student as a dependent on your tax return, you may become eligible for these tax benefits.
To get the full credit amount for the AOTC, your modified adjusted gross income (MAGI) must be less than $80,000 (or $160,000 if you are married filing jointly). If your MAGI is above $80,000, you will receive a reduced amount, and if it’s over $90,000, you won’t be able to claim the credit at all.
For the LLC, the amount is gradually reduced if your MAGI is between $80,000 – $90,000 ($160,000 and $180,000 if you file a joint return). You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). If you have more than one child and they are only eligible for the Lifetime Learning Credit, it may be more beneficial if you don’t claim them as dependents.
If you exceed the income threshold for either of these credits, your child could still be eligible for the credit as long as you don’t claim them as your dependent.
Can I claim my student’s income on my tax return?
If your child’s only income is unearned income (from interest, dividends, or capital gain distributions) and it is between $1,100 and $11,000, you may choose to include that income on your return. In that case, your child would not have to file their own tax return.
Note: The amount of unearned income you report must be more than $1,100 to be included on your return. If it’s less than $1,100, your return will be rejected. If it’s more than $11,000, your student will need to file their own tax return.
If your student is employed, you should not claim their earned income on your return.
If your student files their own tax return, you can still claim them as a dependent, but you shouldn’t claim their income on your return.
Taxes on a dependent’s scholarship: What to expect
Certain scholarships are tax-free. However, you must use the money to pay for qualified education expenses for it not to be treated as income. Some of these expenses include tuition, fees, books, supplies, and other equipment required to pursue your degree. Read more on how college scholarships affect taxes here.
Tax forms you may receive from colleges
If you paid tuition or fees to the college or university for your student, they should receive an IRS Form 1098-T. It will show how much you paid or how much you were billed. It covers tuition, fees, and other expenses directly related to their courses. You can use it to calculate what tax benefits you’re eligible for if you were the one paying the fees.
Note: You may also receive a Form 1098-E from your lender if you’re making student loan payments. Once you have this form you may be eligible to take the student loan interest deduction.
Tax-free college savings plans
If your child is not in college yet or if you want to start thinking about saving for your next student, you may want to consider a 529 savings plan or a Coverdell college savings account. Both grow tax-free from both federal and state income tax, and funds that are withdrawn for education purposes are not taxable.
