Financial aid question, as it pertains to child claiming him / herself on taxes...

Paying for College
1

My step daughter has been nagging me to let her claim herself on her own taxes for a few years now.

I have been reluctant to allow her to do that for numerous reasons.

Apparently friends of hers have told her that if she could claim herself on her taxes (and not be claimed as a dependent on our taxes) she would be given more money for school and would not be forced into borrowing it all and owing so much.

I think that is something that use to be the case. Young adults would try to APPEAR poor and in need, because they don’t make much money and claim to be on their own and not dependent on anybody, and then the government or college would give them more money for college and not make them finance as much…

but I think I read that they caught on to that, so REGARDLESS they want the parents income information, and if they earn over a certain amount the student would STILL not qualify for their college to be paid for, and they’d STILL have to take out loans to pay for college…

so if that is the case it would be a lose lose situation - she would not get a substantial break on her student loans AND I would not get a s big a tax refund, one of the only times throughout the year I come into enough money to take a vacation or pay off some bills.

She might get a bigger tax refund, but under the circumstances it would not be very fair to me - she does live at home and depend on her mother and I, and she doesn’t pay any rent, and we pay for food etc.

I don’t earn a lot of money. I make about $75,000 a year in the suburbs of NYC.

She seems resentful of knowing she will owe, I don’t know, my guess is about $50,000 after she graduates…but I’m just a working class guy, and I would imagine owing $50,000 for college loans is somewhere around average for most students, so isn’t this just something she should just accept as a reality?

Another bit of information…my guess is she will earn somewhere around $8000 to $12,000 working part time in 2017.

2

That should read “step daughter” not set daughter!

3

If she’s a student under 24, she probably doesn’t qualify to be independent. Is she paying more than half of her own expenses?

Even if she is independent for taxes (and I don’t think she is) she won’t be independent for FAFSA and most other FA purposes. A few states allow the student to be independent (if they are indeed supporting themselves) and grant aid. But not for Pell, SEOG, or other funds determined by FAFSA.

4

There are two things at play. Independent for FAFSA, which doesn’t usually happen until 24, and if she qualifies for TAP not easily until 35 I believe.

And independent for federal taxes.

Both have rules. Parents or students don’t decide who can claim the personal exemption on the taxes.

If the parent pays more than half of the support for the student, then they are eligible to claim them as a dependent on their return. Then the student can’t.

But if the student has enough earned income and spends that on more than 50% of their own support, then the parent can’t.

If she claimed her own exemption she probably wouldn’t have enough tax liability for tax credits, and be too young for EITC. She would only get back what she paid in, which she can also do if she files a tax return as your dependent if she makes under $6,300.

If your income is $75,000 then you could qualify for the new Excelsior scholarship at SUNY and CUNY which pays for tuition. Then you might be able to help with room and board and she can take only her direct loans.

Where is she going to college now and what year is she in? And how is she ending up with $50,000 of loans, the direct loan limit for undergrad is about $27,000 I think.

5

You mention that she makes $8-10k in income a year.

How much are all of her expenses for education, health insurance, food, housing, clothing, etc and how much do you pay of that, and how much does she?

If she earns $12,000 a year and takes out $12,500 in loans, that’s a lot of money. You might not actually pay more of her own support than her.

6

Also it looks like you make too much to qualify for EITC. And the step D is too old for child tax credit. So the only tax benefit for you is the around $3000 reduction in income due to her exemption and maybe an AOTC credit. Have you figured out how much in tax refund you would lose if she claimed herself?

But bottom line, if she is eligible to claim her own exemption, then she should.

7
  1. How old is this step daughter?
  2. Do you qualify for the AOTC? If so, you will lose that if you don't claim her.
  3. Who are the custodial parents? You and spouse...or other parent and spouse?
  4. Where does she go to college and how much is she borrowing a year?
8

Iirc, we claimed ours as dependents, got the exemptions, but they filed their own taxes, got their refunds.

Chances she’s truly earning half her expenses are slim, if she’s living at home.

Yes, OP needs to provide more info.
But no, 50k in loans is too much.

9

[QUOTE=""]
Apparently friends of hers have told her that if she could claim herself on her taxes (and not be claimed as a dependent on our taxes) she would be given more money for school and would not be forced into borrowing it all and owing so much.

[/QUOTE]

No…unless she’s 24

10

She’s 22.

Her father’s in another country and doesn’t really come into play. My wife and step daughter immigrated to the US.

I am nearly certain that she does not pay for half of her living expenses, if you include rent and utilities and health insurance and food.

I guessed that she would ultimately owe around $50,000 when all was said and done - you’re right, it probably won’t be that much. She is a junior. She went to Westchester Community College for her Associate’s, and transferred to Mercy College.

It just seems fair and right that I am able to continue to claim her while she is living here and dependent on us. I believe it is a substantial difference in tax refund. And if she couldn’t get more of her college outright paid for anyway (not forced to borrow it all) then that settles it for me.

11

I sympathize with people taking on substantial student loans but I went to the school of hard knocks, was unhappy in the military for over a decade and then scraped and clawed and scrapped my way to where I am now, and we’re doing OK but not great. I want to claim her as a dependent as long as she is a dependent.

I would just like confirmation of one thing:that I am not causing her to take on more student debt by claiming her.

12

“Tuition for Mercy College is $17,466 for the 2015/2016 academic year. This is 33% cheaper than the national average private non-profit four year college tuition of $25,965. The cost is 16% cheaper than the average New York tuition of $20,710 for 4 year colleges.”

Found that on a google search. First, when asked, my wife said she cosigned on a loan, and then when I showed a bit of aggravation for not being informed about that she changed her answer to she didn’t cosign.

Whatever.

Looks like she’ll owe at least $50,000.

But she is also confident and ambitious and optimistic that her income will be high when she gets into her field after graduation.

I’m just a working class guy trying to get a little joy once in a while myself, if my refund is much more claiming her as a dependent that’s what I’m going to do, for as long as it’s legitimate with the tax laws and for as long as she’s living at home. That gives me through 2018 unless she moves out before then.

13

Mercy College does NOT meet full need for all. She might not get a dime more need based aid.

If she is a junior now…then for 2017-2018, you should,have already completed her FAFSA which was based on the 2015 income taxes. Isn’t it a little late to be thinking about the 2015 taxes?

If she goes to grad school in the 2018-2019 school year…those financial aid forms will use 2016 income tax year info. Haven’t you all filed your 2016 taxes?

Plus, unless she is attending medical school or law school…for grad school, she WILL be independent for financial aid purposes anyway…and only HER income and assets will go on the financial aid forms…and tax filing status doesn’t matter…at all.

Not sure this is even an issue for her undergrad years!

14

If she is an undergraduate student under 24 then she is not independent for financial aid (FAFSA), and has to report parent income and assets on her FAFSA.

If she is a junior now then she would have filed her last FAFSA for 2017/18 year already, based on your 2015 income.

Her own income and assets count on the FAFSA towards the EFC as well.

But you have to be certain that you are still eligible to claim her as a dependent for taxes. There is a support test worksheet on the IRS website that might be helpful.

How much are her tuition, fees at her school? Is she living off campus, do you pay for all food/rent/utilities?

I assume you pay for some of tuition, fees and books to be able to claim AOTC.

How much of her $12,000 earnings does she pay for her education or living expenses? How much is she taking out in loans?

15

So it seems that you don’t even know how much her school costs.

And she pays for it all by herself?
Through work and loans?

The Mercy College website lists tuition for 2017/18 at about $18,000.

Fees seem to be high as well.

So let’s say it is $20,000 a year.

Does she commute?

Let’s say she paid the $20,000 with work earnings and a $7,500 loan.

Then if you didn’t contribute anything and she paid 100% of her education costs, then why should you be able to claim an education credit? Do you give her that money for school?

Just because she lives at home, you can’t claim her as dependent on the taxes.

You would have to be sure to have paid more than 50% of her support.

16

“If she is a junior now…then for 2017-2018, you should,have already completed her FAFSA which was based on the 2015 income taxes. Isn’t it a little late to be thinking about the 2015 taxes?”

I think you are assuming things, obviously my 2015 taxes are done, I’m just talking about in general.

“If she goes to grad school in the 2018-2019 school year…those financial aid forms will use 2016 income tax year info. Haven’t you all filed your 2016 taxes?”

I think you are assuming things, obviously my 2016 taxes are done, I’m just talking about in general.

17

@mommdc

It seems this student will be a college senior in 2017-2018 (parent says she is currently a junior).

That being the case…the 2017-2018 financial aid forms used 2015 tax year information. Sure, the parents and student could amend their 2015 taxes…and amend their FAFSA…but really? Is there a point?

If this kid is a senior in 2017-2018, she will graduate with her bachelors in May 2018.

If she goes to grad school in 2018-2019, the 2016 tax year info will be used. Again…MOST folks have already filed their 2016 taxes. And anyway…for financial aid purposes…the student will be independent once she gets her bachelors degree at MOST colleges for grad school.

Maybe the OP can clarify here. Are they thinking about amending the 2015 taxes? The 2016 taxes?

Or is this much ado about nothing?

18

I don’t know. OP said the stepD wanted to get more aid by being independent.

She filed her last FAFSA for senior year. She won’t get more aid because she is under 24 and parent income and assets will be required.

She could see if Mercy College will participate with Excelsior scholarship and maybe get a few thousand for that.

But as far as taxes go, if the stepD was independent for tax purposes in 2015 and 2016, and parent claimed her if they were not eligible to, then the returns would need to be amended.

19

The last few years she has made well under $10,000 working part time in low wage jobs. I figured she used this as go out with friends money, and buy something for herself occasionally money, and gas and insurance for her car money.

She is still living at home. We don’t charge her rent. It would be ridiculous that she could live at home rent free, eat most meals at home, fall under my health insurance plan from my employer and NOT be considered a dependent, including and especially for tax purposes.

I have no intention of amending anything.

This discussion is just to find out if in the past or going forward my step daughter COULD have more of her college paid for, instead of borrowing, IIFF I allowed her to claim herself on her taxes, while living at home and earning well under $10,000 a year.

It SEEMS that she BELIEVES that if she could look poor on her taxes then she would qualify for more free college, and then have less college loan debt in the future…

But I BELIEVE the only thing it would do is deprive me of claiming her on my taxes.

20

@SaturnzBarz

Please answer my question.

Is the 2017-2018 school year your daughter’s LAST year as an undergrad?

If so…the financial aid applications for that year use 2015 tax return data.