Definition of Dependent

Parents Forum
1

<p>I was trying to understand the definition of Dependent. Based on the website below, if kids are earning more than $3200 should be independent. I am referring to kids are over 18. My question is if a college student (19 year old) wanted to be completely financially independent from parents, what are the pros and cons.
Is it not possible for a college student to really be independent as college still consider them as dependent for college fee considerations?</p>

<p><a href="http://www.buckconsultants.com/pdf/fyi_10_28_04.pdf%5B/url%5D"&gt;http://www.buckconsultants.com/pdf/fyi_10_28_04.pdf&lt;/a&gt;&lt;/p>

<p>"The new definition of qualifying relative generally imposes an income limitation – i.e., the dependent cannot
have income that exceeds the exemption amount for the year (projected to be $3,200 for 2005) – that previously only applied for purposes of the dependency exemption for an individual other than a child."</p>

2

<p>If you are talking about financial aid - you can't just declare him "independent" Here's what the FAFSA website says:</p>

<p>Who is a dependent student?
One of the most common questions we're asked is "what defines a dependent student". The FAFSA does not take into account unusual family circumstances or situations like legally emancipated minors. For the 2007-2008 academic year, to be considered an independent student, you MUST meet one of the following conditions: </p>

<p>You were born before January 1, 1984.
You will be enrolled in a master's or doctorate program (beyond a bachelor's degree) at the beginning of the 2007-2008 school year.
You're married as of the day you apply (or you're separated but not divorced).
You have children who receive more than half their support from you.
You have dependents (other than your children or spouse) who live with you and who receive more than half their support from you at the time you apply and through June 30, 2008.
Both your parents are deceased, or you are (or were until age 18) a ward or dependent of the court.
You're currently serving on active duty in the U.S. Armed Forces for purposes other than training OR you're a veteran of the U.S. Armed Forces.</p>

3

<p>It is truly confusing because the definition of dependent for tax purposes, financial aid, court custody, and any number of things can differ. The definition of dependent for financial aid is very specific and has nothing to do with being independent in other ways. Basically your kid is dependent even if he is completely independent financially unless he meets the definition of independence for financial aid purposes. In general that is age 24, married, having a dependent, a veteran, or by court order. There are additional issues as well, so you need to read the application's definition carefully. </p>

<p>This same quandry occurs in definition of custodial parent in a divorce situation. It is not according to tax documents, court order, etc. FAFSA has its own definition.</p>

4

<p>You are confusing "qualifying child" with "qualifying relative". A child can earn any amount of money and still be your dependent for tax purposes if they are under 19 or are a full-time student under 24. A "qualifying relative" must earn under $3,400 (this is old data you linked to - the amount is higher now) to be a dependent.</p>

5

<p>Consider the insurance- will they want to pay for car, renter's, health insurance on their own? Check with your state to see if dependency status affects residency status for public schools, I just looked at the Wis reqs and don't think there would be a link. Some states, such as Wis, make it very tough to become a resident for tuition purposes. You may choose to not declare your child for a deduction on tax forms, ie let them take the deductions instead of you, if they can reap benefits from college tuition paid et al when your income won't give you any tax benefits and theirs will. Financial aid terms will obviously not let parents off the hook easily.</p>

<p>Financial independence is separate from other types of independence. Legally 18 year olds are adults, but parents often have strings tied to finances, living arrangements etc, which create a form of dependence. I'm sure the child/new adult wants as much independence as possible, but most accept the advantages of depending on parents over the freedoms of not having any dependence on their parents (I'm sure most don't even think of the issues involved). Parents can make it easy or hard to accept financial help such as tuition, room and board, insurance coverage- it's all a matter of rules (written or assumed) that must be followed.</p>

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<p>It seems like one can not be independent from parents for FAFSA purposes until they are 23 or older. What about for insurance (e.g., car) and other related issues? Is there any benefit for them being independent?<br>
I am sorry if this question had been answered before.</p>

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<p>Thanks wis75</p>

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<p>Thanks dragonmom, momofchris and cptofthehouse too</p>

9

<p>Ijmom, being independent does not have a single benefit nor is there a single definition of independence. If you are inquiring if there is a benefit of not having your son/daughter listed as a dependent for tax purposes, yes, it is possible there are benefits. If you list your son/daughter as a dependent on your taxes, you get an exemption for that person in terms of taxes, so you do not have to pay as much in the way of taxes. You can also get tuition tax credit/deductions for what you pay for that child. All of these things are possible if the child is your dependent. If he is independent, you do not get to do those things. However, the child files his own taxes and can declare himself as an exemption, and can also lower his taxes with certain tuition payment situations. If he has investments and earnings, he also pays his own taxes on them. Usually, young people are in a lower income bracket, so he may end up saving a lot more in taxes from his earning by being an independent than if he is listed as a dependent on your taxes. It depends on your tax bracket and his. The deductions, credits, exemptions may well be more valuable to you or useless to you depending on your tax situation. So it depends on how the numbers work out.</p>

<p>Some companies will only cover kids who are dependents on your tax return on employer provided insurane. That may be their definition of eligibility for their plan. You do have to be careful of these things. I just recently was requested (commanded) to participate in a Dependent Eligibility Review for health benefits provided by H's company. I had to send in all of our kids' birth certificates (copies), their last report cards, and a statement that my college kid was indeed enrolled in college for more than 12 credits with a projected graduation date. So companies do spot checks to make sure they are not covering ringers. Those eligibility requirements may or may not match tax or school dependency requirements. For health insurance purposes, it may or may not be smart to have the kid dependent or independent. If you have lousy, expensive work health insurance, the insurance the college provides might be a better deal. If it is a better deal to have him on the work policy, you had better make sure he meets the requirements that they give. </p>

<p>For car insurance, that is a whole other can of worms that I have had to eat. It's cheaper to insure your kid on your policy. However, if your kid has an incident that gets reported, he can jeopardize your car insurance, and it might be much better to put him on his own insurance if he has his own car. In our state, if he lives with you and has a drivers license, he's your dependent and you have to have him on your own insurance if he does not have insurance of his own. I went to court on that one, trying to disown my oldest for car insurance purposes. This can vary from state to state, and maybe among insurance companies. Actually for car insurance purposes, if an insurance company gets a line that ANYONE is living in your household with a driver's license, they want that person listed and paid for in terms of your insurance. Some states will permit a statement from you saying you will exempt the insurance company from responsibility of driving your car, and that you will not permit him to do so, but our state does not. </p>

<p>It's sort of like being of age. Though age 18 is supposed to be the age of adulthood, you cannot drink until 21, be considered an adult for fin aid purposes until you are 24 (with some exceptions), you may not be able to rent a car without a deposit or paying extra until you are age 24, you may stay on your parents' insurance if you are in college or age 24/or whatever the policy may state, you may be legal to marry in some states at age 16. Under certain conditions, even young children can be tried as adults in criminal court. Confusing? Yes.-</p>

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<p>at what point does it make sense for a child (over 18 under 24, in college full time) to be independent for tax purposes. </p>

<p>How much would they have to earn to make it more advantageous for them to not be a dependent on the parent's tax return??</p>

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<p>It would depend on the parents' tax bracket. For those who lots of money so that the exemptions are taken away, it's obviously better that the kid file taxes independently so he can get use of his exemption and tuition favors on taxes. Also the kids' income is an issue too, as to which is favorable. You have to run the numbers both ways. So it's a two way street--depends on both the kid's numbers and the parents'.</p>

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<p>well for single taxpayers the deduction is 5350 and you get another 3400 for an exemption for a total of 8750 subtracted from your income. I would guess that if the students income was below this, it would make more sense for the parent to claim the child (assuming the parent doesn't make a lot of money which I don't!)</p>

<p>if the kid makes less than 5350 he will have 0 tax liability even if he is claimed as dependent on parent's taxes.
If he makes btw 5350 and 8750 he will have some tax liability if claimed by the parent.</p>

<p>Am I getting that right??</p>

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<p>There is also the question of the taxability of scholarships and how that is most advantageous. If you can use one of the free efile programs, just run it both ways and see which is better.</p>

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<p>"May" is the correct word there as I have heard of people being able to rent a car when under 24 if they are on a business trip, but this varies by rental company.</p>

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<p>Sometimes, it won't even be a choice to be made. Our son at 14 moved out of state to attend a graduate program that paid his tuition plus his health insurance plus a stipend such that he was paying for his own rent, food, etc. and we could legally no longer consider him a dependent of ours for taxes. Now for situations where there is a choice, I am not sure of the "break point" where it makes more sense to be independent, sorry.</p>

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<p>I take it you mean purely from a financial/tax return standpoint there, and as I wrote above, I couldn't say on that. But there is more to being financially independent from parents at play (work?) than pure finances, both pros and cons. I would think for most, being financially independent would be a good contributor to self-esteem, for example. People who are financially independent at a point past puberty also might feel in better step in life situation with where their bodies are (one speculation as to why teens today often have issues with parents/life is that their bodies are sending signals that they are adults, able to have children and such, while they are still living at home and dependent on parents rather than being on their own, and that this causes an asynchronous feeling in them, perhaps even unconsciously). The financially independent person also can't be manipulated with parents saying things like, "If you don't do X, we won't pay your (tuition/sorority dues/car bills/whatever as I've heard all this and more being said by parents)" (and such manipulation rarely sits well with the manipulated, if the person even goes for being manipulated rather than telling the parents they can take a hike). There are just all kinds of things beyond taxes and such that factor in here, seems to me.</p>

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<p>This might be a stupid question, but, here goes... my D is earning job money for the first time, and is indignant at the taxes that are deducted. (Welcome to my world, kiddo!! :) ) Anyway, the total $ will be way less than what will be required for her to file, but she wants her withheld $ back, so she might want to file. She will still be my dependent, so I will claim her on my return, but what # (for dependent) will she claim? I am assuming she should put down 0. On her W-4 she put down 1. She is working at our HS, and the business office advised her to put down 1. What's the best advice here? Thanks, folks, as always!</p>

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<p>She will definitely want to file to get her money back. On the return she will claim -0- because she is a dependent on your return. She should still get all her federal withholding back if she makes less than the standard deduction. She might also need to file a state return depending on what the standard deduction is there. She will not, however, get back any of the money withheld for social security and medicare. </p>

<p>What she claims on her W-4 depends on how much she wants back when she files. If she claims 0 they will withhold more and she'll get more back. Some people really like that. If she plans to not make enough to have to file, she could even claim to be exempt and not have them withhold but I'd be very careful doing that. If she makes more than planned and ends up owing, that's a bad thing for a kid who probably doesn't have the money in April.</p>

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<p>HA! Franglish, my kids are not impressed with FICA and all that money disappearing each check. Then they realise big chunks go to their grandparents and are even more shocked.</p>

<p>IF your D is trying to minimize her deductions, then a higher number on the W4 will lower the taxes taken out, but be careful she does not end up owing money</p>

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<p>I don't think there's much of a choice for tax purposes-- when the kid files their own return, they are asked if they "could" be claimed as a dependent on another person's return... not if they "are". So the parent can choose not to claim the kid, but if the kid was in fact a dependent (in school 5 months and getting more than half their support from the parent) --- then the kid's taxes will still be figured as a dependent. I may be off slightly on the details -- but my experience was in trying to figure out tax filings when my son was age 20 and in fact living apart from me and supporting himself. I think there could be borderline situations where it is unclear -- but if a kid was living at home or attending school from January-June and then decides she wants to become independent -- it's probably too late for that year to make it happen.</p>

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<p>Thanks-- she will keep the W-4 at 1, and I will claim her when I do the tax returns. She will probably also file (timing will be tricky, though), even though she will make less than the amount that will require her to file. She wants the $ back! She said it was not fair that she had to pay medicare and social security taxes. She said there would be no money in those budgets by the time she gets that old! I laughed... :)</p>