My 20 year old son is a full time college student who was on coop for 7 months in 2016. He made an enviable amount of money, which he has in savings/investments. We, his parents, paid for his fall semester back at school using primarily current income as well as a disbursement from his 529. Our son contributed $3750 of his own money.
Now it’s time to pay taxes. We don’t qualify for the AOTC as our income is too high. I am investigating how to have my son claim the AOTC instead but am not sure how to do this exactly. 1. I believe that I would remove my son as a dependent on our tax return. But is it correct that my son could not take an exemption for himself because he COULD be listed as our dependent? My son paid for his own food/maintenance while on coop and his employer provided housing as a perk. Not sure how to calculate if he provided 50% of his own support. What goes into support exactly?
2. The 529 is in my name with my son as beneficiary. Where do I account for the disbursement (which is about 20% of the bill for tuition/r&b). Do I ignore it and the 1098t on our tax return and then use those items for son’s tax return so he gets the AOTC? Or do I answer questions about 529 and school expenses on both returns?
Thank you for any insight.
There should be a support worksheet on the IRS website to determine if you provided more than half of your son’s support and can claim him as a dependent. If he made a lot of money from coop he might no longer qualify as your dependent.
If I remember correctly there is a way for him to claim AOTC if you could claim him as a dependent, but choose not to. Refer to Publication 970. But I don’t think he can claim the full credit then.
https://fafsa.ed.gov/fotw1718/help/totalcoopEarnings.htm
Also I think on the FAFSA in question 44f coop earnings can be subtracted from total student income.
If he had no coop earnings in 2015, the 2016 coop earnings will be reported on his 2018/19 FAFSA
Your son can claim the AOTC on his tax return, as long as he is otherwise qualified, as long as you don’t claim an exemption for him on your tax return, even though you may be eligible to claim an exemption for him. So, for purposes of the AOTC, it doesn’t matter if he is tax independent or not.
If your son is going to claim the AOTC on his tax return and all of the 529 distributions for the year are qualified, than nothing from the 1098-T or his educational expenses has any relevance to your tax return. Your son would need to complete form 8863 (Education Credits) and file it with his return (1040 or 1040A).
To briefly add to the above: note that while for AOTC purposes it doesn’t matter if the student is tax independent or not, if the student actually wants to claim his/her own exemption, it does matter. So if the student is not tax independent, the student can still claim the AOTC on his/her return (if qualified in all respects) as long as the student’s exemption is not claimed on someone else’s return, but the student will not be able to claim his or her own exemption if that exemption can be claimed by someone else (even if it’s not actually claimed).
Thank you for your help, @BelknapPoint and @mommdc. Very much appreciated. What has confused me about the IRS worksheet to determine dependency is that it seems to be outside of our situation. The sheet wants us to determine the expenses of our household and determine what part applies to our student. Well,none of our household expenses apply to him. Other than a few weeks of vacation time during 2016, he was not in our home. He was either in a corporate apartment (paid as part of his benefits package at the company) or living in a university-owned apartment that was paid by us/him as part of his overall bill from the university, which included room and a meal plan. He pays for everything else himself - his food, entertainment, clothing, etc. He didn’t have a share of our household expenses (mortgage, utilities, maintenance, clothing, entertainment, whatever) -he wasn’t part of the household.
Health insurance and expenses? Car insurance, car maintenance, car loan payments- does he pay 100% of those himself?
According to the above (scroll down to Refundable Credit on the first IRS link about the AOTC I posted), it does matter if the student is dependent or independent for taxes.
If he doesn’t qualify for refundable part of AOTC and his tax liability is too low, he might not qualify for all of the nonrefundable part either.
Though if a student is dependent for taxes and has an income tax liability of $2500 or more, he/she can get the whole $2500 AOTC as a credit against tax.
My understanding of the worksheet is that tuition and other college expenses (room, board, personal expenses) minus his $3750 add up to more than his food and personal expenses at his co-op job, he could not claim he provided more than 50% of his support.
If I am wrong, I hope someone will clarify. I don’t think he can claim any support provided by an outside source as supporting himself and since his co-op company paid his housing, he cannot factor that into his self-support. So, does his paying for his food and other expenses during those 7 months add up to more than his tuition and other college expenses from spring/summer? (Basically is line 15 and other related supports the bigger number on the worksheet.)
(We run into this bc our ds is completely financially independent but it is all scholarship and research grant money. He can’t claim any of it toward support. But now I am wondering if he can claim the AOTC himself??)
@mom2collegekids, if you look at the quote in post #10, I think it explains that the support has to be from earned income.
It is a catch 22 in a way, as I was discussing with another poster a while back. Her son had scholarships to cover all his tuition, fees, and housing costs, so the parents couldn’t claim more than 50% of support, and student couldn’t either, because scholarships couldn’t be counted towards support, and he didn’t have earned income.
Yes, he can, as long as he is meets the other requirements. Whether or not he can claim his own tax exemption or not based on the dependency test does not matter. See mo post #6, this thread. As long as you don’t claim an exemption for him (if you are even able to), he can claim his own AOTC (again, assuming he meets the other requirements).
@mommds Thanks for the clarification.
Would you interpret that to mean that co-op provided housing is also not self-support?
@Mom2aphysicsgeek Oh my, I am sorry, I misread the name and mixed you up with mom2collegekids for some reason. And I was thinking of your situation with that post.
If a third party pays the housing, then I don’t think it can be used towards support.
Your son might be able to claim some of the AOTC, but the information I quoted in post #10 gives some exceptions based on age and earned income it seems, to which part of the AOTC he can claim. There is a refundable and non refundable part.
But he would also have to have some qualified education expenses that were not paid with tax-free scholarships.
Did you ever find a qualified tax preparer last year, to help you with your situation?
@mommdc No. I contacted several and no one had a clue. (It is incredibly frustrating.)
I spent hours reading those worksheets and forms. That is why I am doubting that the OP’s ds is going to be able to claim more than 50% of his own support. (I don’t want to derail the OP’s thread with our own issues. 
) My understanding after spending so much time reading them is that in order for them to claim 50% or more of their support that their earned income had to pay more than 50% of their expenses (that would include tuition, food plan, books, clothes, etc.)
My reading of the OP’s situation is that he only paid $3750 out of a semester’s cost and personal expenses while co-oping. In order for that to be 50%, wouldn’t his tuition, room, and board costs have to be unbelievably low? Housing is typically the largest expense, so I would suspect having it provided ny the company negated his ability to claim himself as providing 50% of his expenses.
That is why I asked. (If that is wrong, definitely correct me!!)
@Mom2aphysicsgeek no, I tend to agree with you. This is all very complex, because there is necessity of earned income, and that earned income being spent on own support.
If he saved most of his money, and paid $3750 towards his education expenses, plus food, etc during coop, but the parents paid first semester education costs out of current income and 529, then the parents probably paid more of the total support. That’s what they need to figure out.
To determine if he was independent/dependent for taxes and whether he can claim the full AOTC or not.
Is his federal income tax liability $2500 or more? If so, and he has at least $4k of tuition/books paid with non-tax-advantaged dollars, he can get the full AOTC even if he doesn’t support himself and no one claims his exemption.