Student Education Expense

[JohnH]

Client's 22-year-old single son living at home earned $32K and is a full-time student with $8K of tuition expense. Mom & dad's earnings cause dependent exemption and education credits to completely phase out so no reason to claim him as a qualifying child, especially given his income.  Seems logical for son to file single and claim the AOC credit.  I don't run into this very often since my client base is generally much older, so I'd like to ask for input.  Anyone care to comment?

[Sara EA]

He is still a qualifying child if he does not provide more than half of his own support.  Dependents cannot claim education credits.  Filing his own return (not claiming himself) might work if he has paid student loan interest.

[Lion EA]

In the situation where the parents do NOT claim him but could, doesn't the student get to claim education benefits, except NOT the refundable part? Too tired to look it up now, but check on it, John.

[kathyc2]

It comes down to if his 32K wages are more than half of his total support. 

If over half he can claim the full credit, including the refundable portion.

It it's less than half, he can claim the 60% non refundable but not the 40% refundable.  If that is the case also check the box that he can be claimed on another return. 

[Terry D EA]

Yes, the student can claim the credit. The exceptions for the refundable portion is below. Of course, this is for the AOC. if you are looking at the Lifetime Learning credit, if the student is not a dependent, they can claim the credit without restrictions.

Refundable portion. 40% of the American
Opportunity Credit is refundable for most taxpayers.
Exception: Taxpayers under age 24 cannot claim any part of the
credit as refundable if all three of the following conditions apply.
1) The taxpayer is:
• Under age 18 at the end of the tax year,
• Age 18 at the end of the tax year with earned income of less
than one-half of his or her support, or • A full-time student over age 18 and under age 24 at the end
of the tax year with earned income of less than one-half of
his or her support,
2) At least one of the taxpayer’s parents was alive at the end of
the tax year, and
3) The taxpayer is filing as Single, Head of Household, Qualifying
Surviving Spouse, or Married Filing Separately for the tax year.

[JohnH]

I think we will do a workup on support just to be sure.  But given what I already know of their family size & lifestyle (not extravagant), think the $32k is going easily add up to more than half his support. 
 

I appreciate all the replies.  

[Lion EA]

Even though parents earn enough to be in phaseout territory?! But doing the support worksheets is a good idea in any case to CYA.

[Hahn1040]

If he did not use the income for his support, but rather put it in savings, them it would not be part of his calculation.

If he did use it for his support and what he paid was more than half of his support, then he must claim himself and he gets all of the credits

If he did not use it for support and he did not provide more than half of his support, then the parents can choose not to claim him.  He cannot claim himself, but he can get the nonrefundable portion of the AOC.  There is a box to check on the form that shows that he can be claimed by another but is not claimed.

[JohnH]

Parents earnings do phase out everything in terms of credits. But they live a relatively modest middle-class lifestyle, nice home but not a McMansion, drive used vehicles until the wheels fall off, don’t buy boats, motorcycles, RVs, or other frills.  
 

Son doesn’t save much, if any, at this point in his life. I’m going to do a support calculation just to be sure, but I’m pretty sure he’s ok claiming himself. 

[TexTaxToo]

16 hours ago, Hahn1040 said:

If he did not use the income for his support, but rather put it in savings, them it would not be part of his calculation.

That is true for the dependency calculation.  Not true for the refundable AOC calculation - for that, it doesn't matter who actually paid for the support, just that the earned income was more than half of the support costs.