I just don’t see how, according to the IRS, I could lose my right to claim a 22 year old step daughter, earning $7500 a year in part time work, and living at home, as a dependent. I didn’t think to do those calculations, although I do Turbotax, because it would seem absurd that she is not a dependent in this situation.
OP, she is dependent for financial aid purposes, and if she’s living at home and not paying for food or rent, I think she’s dependent for tax purposes too. If I were you, I’d get my hands on her tuition bills and see how they’re being paid. You need to know what you’re paying and how it’s being paid. If you and your wife have PLUS loans, they’re accruing interest.
If your stepdaughter claims herself on her taxes and it reduces your tax refund, you may have to reduce how much you can contribute for college. You can’t pay what you don’t have.
She cannot get more aid from a college that offers little or none, in the first place.
Look, this is getting too complicated. This kid isn’t supporting herself to the extent the IRS defines, to some level the IRS would challenge you on.
This is not a meet full need college. She is NOT independent for finaid purposes. In a sense, 0+0=0. No advantage to her to claiming tax independence.
She doesn’t earn enough to move out on her own. What could she afford, $500/mo rent, plus utilities, car, etc? And still throw something toward college tuition, plus life? Doubt it.
The core issue is this kid doesn’t understand.
She is a dependent if she meets the definition (under 24 and a student, not paying half her own expenses). If you both agreed to let her be an independent filer, and she checked that no one else can take her on their tax returns, it is unlikely that the IRS would question her status or that it would trigger an audit. She’s an adult, she works, she pays taxes. However, if she files as an independent and you file with her as a dependent, it is likely one of the returns will be rejected or ‘corrected’ and it is usually whoever files later. And it is not the correct status because you can take her as a dependent.
It’s not going to get her better financial aid since financial aid is based on FAFSA filing status, not IRS filing status. It might get her a little more money from taxes because she’d have her $4000 personal exemption and maybe an earned income credit, but yes, your taxes would most likely be higher because you’d lose the personal exemption and any credits (AOTC?). It really depends on how much she makes.
This year my daughter will probably be independent for tax filing status (she doesn’t live at home), but she’d still be dependent for FAFSA. Luckily, we’re done filing FAFSA for her.
Just adding fuel to the fire here…
If this kid goes to medical or,law school…it is HIGHLY likely that parent income and assets will be required on the financial aid application forms…and tax filing status doesn’t matter one speck.
According to the IRS, and according to what you’ve posted here, you’re not losing the “right” to claim her. You should be claiming her. The rules are pretty cut and dry- does she pay half of her upkeep? If not, then she’s a dependent.
I think you’re way over-complicating this and I’m getting the feeling that this is a way bigger issue than just taxes or financial aid. That’s not my business, just an observation.
As noted by the OP…this student is graduating in spring 2018. That means that her last FAFSA with parent income has been filed (unless she goes to,law or medical school).
The 2017-2018 FAFSA used 2015 income…as it did last year.
Nice this student has a bachelors degree…she will be independent for financial aid purposes and her parent income and assets won’t be included any longer…regardless of her tax filing status.
The student needs to STOP listening to her friends. For all she knows…they had dependency overrides for some very different reason.
And I’m not sure there is any point in discussing this further with her as her last undergrad FAFSA has been filed.
Perhaps her bio parent can ask her to please stop.
Talking about taxes - your family is in the15% tax bracket while your step-daughter is in the10% tax bracket. With her earnings she would not have been able to take the full advantage of 4K personal exemption so her tax savings would be below $400. You saved $600 by claiming her. Additionally you should have been able to take a full 2.5K AOTC credit for her while she would not be able to get more than the refundable part of it that is 1K. So even if she would claim herself as an independent on taxes with her income she would gain something around $1.2K while you would lose 2500+600=$3.1K.
She needs to keep in mind that the family as a whole would lose a lot of money if she decided to claim her “independence”, even if she was mathematically entitled to do so (that I doubt).
@SaturnzBarz I’m with you 100%. She is almost a Senior has she been getting whatever FA based on your income only? Or do you and her mom both fill out forms jointly? If she’s going to Mercy College I’m assuming you live in Westchester, my neck of the woods or nearby and while 75k is a good salary it doesn’t get you to first base around here. If you’re footing the bills like housing, food, insurance, cable, and much more while allowing her to keep her salary to pay for her auto , car insurance, gas and shop with her friends then in my book she’s your dependant. I don’t know what the EFC is on 75K maybe one of the experts on here can say but Mercy is around 20K and if she’s been making around 8-10 per year why hasn’t she been paying some of her educational costs? Or taking less loans. I raised 5 here in Westchester on no more than 40k so I know what you mean about the tax refund. If you ask me she’s getting a pretty good deal now. If and when she does move out and figures out how to live on what she earns now and go to College let us know will you.
@austinmshauri Spot on! OP had stated she doesn’t contribute a thing to the household plus they let her keep about 10k she earns so she can drive her car get gas and probably hangout and shop with her friends . 10k is pretty good money if you’re living at home and now when she’s almost done with school she wants to throw a monkey wrench in his tax status. No way would I allow it unless she’s willing to pay her fair share of all costs and not use OPs income anymore to qualify for anything. What I don’t get is what’s she going to report on the FAFSA? That she makes 10k but doesn’t pay for rent, utilities or food or is she going to lie that she does?
This student has already filed the fafsa for 2017-2018…I think…which is her last year on college. This uses 2015 income tax return information. Plus…tax return filing status has NOTHING to do with financial aid status.
This student IS a dependent student for financial aid purposes.
OP’s D is a dependent student for federal and NYS aid.
Federal aid
Since she meets none of the above requirements she is dependent for federal aid
Dependency for NY State Aid
She lives at your house so she will not be an independent student until she graduates or turns 35
Even then her being independent is not going to do much for her. If she makes more than 10K/year, she will not be eligible for any state aid.
Her problem is as others have stated she attends a school that does not meet 100% demonstrated need and is not generous with need based aid.
She is kind of stuck because this is her senior year and she needs to graduate. Tuition is approx 20k and she is eligible for $7500 in loans leaving $12,500. Did they give her any scholarship/aid?
Why did she not try to transfer to another SUNY (purchase/new paltz) which would have been less expensive than Mercy?
She took out second private loans to cover the difference.
Not sure why she chose Mercy. Her mother just got her Masters there, and my wife said that Mercy had the major that she wanted there (International Relations)
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She took out second private loans to cover the difference.
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If so, then she needed to have a QUALIFIED cosigner. No bank would lend to her based on her low income. The bank would require a cosigner that could show income.
I think the bio mom cosigner the loans.
But really…what does this matter?
The kid has ONE more year of college. One more. Regardless of her tax filing status, she will NOT be independent for financial aid purposes regardless of what her friends have told her.
And her school doesn’t meet full need anyway.
Ok checking for clarity:
This student is going into her last year, correct? So I assume the FA forms have already been filed for this year?
When is it exactly then that she would want to “claim” independent for FA purposes?*
*Noting, of course, that she cannot.
Second, she wants to claim herself as independent for tax purposes (which has zero to do with FA), but she does not qualify based on what has been said here.
Do I have that correct?
If so, I’m not sure what the question is. She is dependent for both.
Once she gets her bachelor’s, she will automatically be independent so if she continues on with school, she will be independent. (Though there is no federal aid other than loans for grad students and schools very rarely give need-based aid, excluding some schools like med schools which continue to take into account parent finances on their own forms.)
It would be wise for you to explain to your StepDD that her friends are misinformed. Otherwise your StepDD will resent you when it comes time to pay back the loans.
In fact, she may refuse to pay them back as long as she wrongly thinks that she could have gotten more aid by claiming herself on taxes. And certainly someone cosigned those loans and would have to pay them if StepDD refused to pay them…if you get my drift.
Young people don’t think too deeply sometimes. If all it took was for kids to claim themselves to get more FA then all of America’s college kids would be doing that.
FYI…the private loan for this past school year was signed awhile ago. the private loan that will be needed for 2017-18 school year probably has NOT YET been signed. I would make sure that your StepDD understands that she would not get more aid by claiming herself BEFORE that loan is cosigned. Make sure she understands that those are her loans that she will have to repay, and that your tax filing did NOT cause her to have to take out more loans.
Her mother consigned, without me fully understanding what was happening. My wife assures me that both of them understand they are her (step daughter’s) loans. I’ve made it quite clear that I would be livid if they somehow landed in my wife’s lap…because we obviously work aa a team and whatever affects her affects me.
It’s a bummer that anybody has to take on so much student loan debt but we have been struggling financially for quite a while and once things improve I am really not in the mood for anything taking away what little play money we have as we head into our fifties.
I had my own misery through my twenties and thirties, I got caught up in the US Navy until I was 31 for reasons I don’t want to explain here…but I wasn’t happy into my thirties and I wasn’t doing OK financially until I was 40, and we are still not doing so great. Things should be better once my wife finds employment related to her Masters degree, but we will have her loans to pay back, and frankly I don’t want to give away any of the little “gravy” we might happen to come into…after struggling for so long ourselves.
My brother has been in the well over $100,000 a year club with his wife for going on a decade now. He will be helping his kids with college. But he is 10 years younger than me and in a position to do so. My son and step daughter will have to figure things out on their own. Hopefully that will be a combination of success and this country finally getting a Bernie Sanders mindset…and maybe they’ll get some loan forgiveness.
It does not matter what they both “understand”,if your stepdaughter does not or cannot repay these loans, your wife will be responsible for repaying these loans.
What does your daughter plan to do with an international relations degree?
Your daughter cannot get loan forgiveness unless she works a qualified public interest job. The best she can hope for is relief for 2 years through the get on your feet program but she would need a low income job to get that .
I know what it means to cosign a loan.
As far as I am concerned she’ll have to do everything possible to repay those loans, from working 2 jobs to renting a house with 6 or 7 other people.
I don’t know what is available for loan forgiveness, I am just hoping it’s one of those things that millennials put real pressure on elected officials to do something about.