Employer Provided Tuition for Child

[Patrick Michael]

Client works for a major college and his son gets to attend the college tuition free as a benefit.  He could not claim his son as a dependent  in 2019 as he took the year off from school  to perform missionary work.  Son will be attending college in 2020, full time, is under 24 and will be living at home, so the parents will be claiming him in 2020. All was well until the college's HR department sent him a letter stating the tuition would be included in his taxable income for 2020 because he did not claim his son as a dependent in 2019. 

From my research I believe the tuition would not be taxable.  I could not find anything that said the son would have to be a dependent in the previous year for the tuition to be tax free, only for the year the tuition was for. 

Am I missing something?

Thanks

[Lee B]

I suspect that it has to do with the college's benefit package provided to employees,

which probably says something like, "dependents of full time employees can attend tuition free."

[Roberts]

My wife works at a University with this program and this is a tax free benefit.

I'd think the child would have to be a dependent to qualify for the benefit so why would last year's status matter this year? I'd call the University and ask.

 

I know on my wife's they have a weird one where step children are able to receive the benefit but if your step child is derived from a "domestic partnership" (gay marriage) it would be a taxable benefit.

[Lion EA]

Is it possible the parents paid more than half their son's support while he was on his missionary year? Was it a temporary absence? Was he gone a full calendar year, or was it a school year? Is it possible the parents qualify to claim their son for 2019 as a qualifying relative?

[Patrick Michael]

37 minutes ago, Roberts said:

My wife works at a University with this program and this is a tax free benefit.

I'd think the child would have to be a dependent to qualify for the benefit so why would last year's status matter this year? I'd call the University and ask.

 

I know on my wife's they have a weird one where step children are able to receive the benefit but if your step child is derived from a "domestic partnership" (gay marriage) it would be a taxable benefit.

He's tried for over a week but nobody answers the phone and he can not go the office due to Covid.  He's freaking out because tuition is close to $60K a year (almost double what he makes).

[Patrick Michael]

3 minutes ago, Lion EA said:

Is it possible the parents paid more than half their son's support while he was on his missionary year? Was it a temporary absence? Was he gone a full calendar year, or was it a school year? Is it possible the parents qualify to claim their son for 2019 as a qualifying relative?

We might be able to go that route  The non-profit paid for all his living expenses while away.  Parents are trying to see if they can come up with enough evidence that they provided over half his support but it will close based on the amount of time he was away.  I think we can claim it was a temporary absence since he intended to return home.   But we would rather not go down that route in case of an audit.  

[Lion EA]

And, you have the potential issue of how much he earned, if the non-profit paid him or if the non-profit's paying all his living expenses while away counts as earned income.

I was just brainstorming.

But, for $60,000 your client might pay for you to research further. Are you an NATP member with a free research question available? They'll provide you with cites. And, their fee is only $35 or so if you've used your freebie. Could even be worth the membership fee, if you charge your client for research.

David and Mary Mellem answer tax questions at a very reasonable price, something around $15 for 15 minutes of their time. But they have an amazing amount of cites on the tip of their tongues.