As you start to work and make money, your life and education will support you. It’s inevitable and everyone goes through it. But it looks different for everyone.
You may live with your parents or your parents may pay for college. Or your parents give you money to cover your living expenses. Or maybe your parents aren’t giving you any money at all. Read about our thoughts on when and when not to take money from your parents.
However, if you are making money, you will need to file your own 1040 income tax return. Then you come to the question that all online tax software asks: Can I be claimed as dependent on my parents’ tax return? And you think to yourself I make my own money, you can’t claim me on your tax return! Your parents may have a different idea, and the two of you may receive a letter from the IRS.
That little box on your tax return raises so many questions:
CAN your parents claim you as dependent on their tax returns? Especially if you have a part-time or full-time job? What if you don’t live at home?
Let’s break this down and see when they can and cannot claim you as a dependent, and what to do about it if discussing money with your parents is a no-go. This also applies to the stimulus test, since adults who are claimed as dependent persons do not receive a stimulus test.
First, you need to find out if you qualify as a dependent.
Who is dependent
The IRS rules state that there are actually two types of dependents:
- a qualified child
- a qualifying relative
Each dependent type has different rules. However, this article will help you determine if you are a qualified child. Your dependent status is especially important if you are either making your own money or are enrolled in school full time.
- Are you a citizen or a resident?
You must be a US citizen, US citizen, US resident, or resident of Canada or Mexico.
- Is someone else already claiming that you are addicted?
Your parents cannot claim you as a dependent if you rightly assert yourself (by taking your personal exemption) or if someone else is claiming you as a dependent (another parent if your parents are divorced, or someone else) .
- Are you submitting a joint return?
You cannot claim someone who is married and filing a joint tax return. If you are married and are filing a return together with your spouse, your parents cannot claim you as a dependent.
In addition to the above qualifications, parents must be able to answer “yes” to all of the following questions in order to claim a dependent child exemption.
Any of these relationships, including birth parents, are considered a qualified relative to depend on a child. The child must be their son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, step-brother, stepsister, adopted child, or descendant of one of them.
You must be under 19 for your parents to claim you as a dependent. However, if you are a full-time student you must be under the age of 24 for your parents to be able to claim you as a dependent. If you are completely and permanently disabled, there is no age limit for your parents to claim you as a dependent.
- Do you live with your parents?
With a few exceptions, you have to live with your parents for more than six months.
- Do your parents provide more than half of your financial resources?
Your job cannot do more than half of your support.
- Are you being claimed to be dependent on anyone other than your parents?
This is a common problem for children of divorced parents. Here you must use the “Tie Breaker Rules” contained in Internal Revenue Service (IRS) publication 501. These rules set out income, parentage, and residence requirements in order to have a child.
Rules for students
If you are over 19 and not a full-time student, your parents are can not claim you as dependent.
There are no age limit for parents to claim their child, if that is the child permanently and completely disabled.
If you are under 24 years and a Full time studentYour parents can claim you if you are enrolled as a full-time student at an accredited institution AND your parents provide more than 50% of your support.
Scholarships or grants received by the student are not considered to be the student providing their own assistance. If you haven’t given 50% of your assistance, you must select the “May be claimed on someone else’s return” option, even if your parents do not claim you. The IRS has a worksheet that you can use to determine who is providing more than 50% of the support.
Do your parents pay for your college? Do you think your parents should pay for your college? Click here to check out the pros and cons of Parents Paying for College.
What if more than one person supports me?
If your parents are divorced or separated, you are a qualified child of one of your parents. If you don’t meet the requirements of being a qualified child to either parent, you can still be a qualifying relative.
In short, a child will be treated as a qualifying relative of their non-caring parent if all four of the following statements are true.
- Their parents are legally separated due to a divorce decree or separate alimony decree or a written separation agreement, or have lived separately at all times in the last 6 months of the year that they were not married.
- You received more than half of your support from your parents.
- You were in the care of one or both parents for more than six months.
- The custody parent signs a written statement promising not to claim the child for that year, and the non-custody parent attaches the written statement to their return.
There are special rules for divorce judgments categorized according to the year of the divorce judgment. More information and specific terms can be found here.
In multiple support arrangements, two or more people together offer more than half the support of one person. In this case, you can agree that anyone providing more than 10% of the support can claim the child as a qualified relative and the person claiming the dependent must include a multiple support statement on their tax return.
Let your parents claim you as a dependent child on their tax returns
Once your parents claim you are dependent on their tax returns, your parents will also claim all scholarships, grants, tuition fees, and your 1098-T on their tax returns.
Additionally, your parents can claim any eligible tax credits for educational purposes.
What to do if your parents can claim you as a dependent:
If you have earned an income but your parents still have the right to depend on you, all you need to do is select the ‘I can be claimed on someone else’s return’ option.
Tax advantages for parents that you claim in your tax return
Parents qualify for educational credits that students may receive can not on your own. If your parents qualify to claim you, let them! If your parents qualify but choose not to claim you, you will still need to select the “I may be claimed on someone else’s tax return” option when filing your tax return.
Your parents may also be eligible for the Child Tax Credit and Earned Income Tax Credit, which can result in a significant refund or significant tax savings.
What to do if you or your parents made tax return errors?
Unfortunately, it is very common for adult children and parents not to talk – especially not about money and taxes. So what if your parents claimed you on their taxes and you registered yourself? Here are the tax ramifications you and your parents face if either of you makes a mistake.
First of all, you will both receive a notification from the IRS and will need to respond with the correct documentation. If you and your parents made a claim, one of you will have to correct the tax return. After this return has been processed, the other party can next submit their return.
If you file your tax return before your parents file their tax return, their tax return will be rejected for the dependent exemption. If your parents submit before submitting your return, your return may be refused because you applied for self-exemption.
If either the parent or the child can demonstrate that the other party wrongly invoked the exemption, the party that was found to be wrong may be subject to scrutiny.
99.5% of the time, it is easier to have a simple conversation ahead of time than to do it through the IRS.
Remember, even if you want to claim the self-exemption on your tax return, you should go through the tests outlined above to make sure you are eligible to claim yourself and you also want to evaluate your parents’ tax benefits as dependent.
The main lesson here is that you and your parents should be on the same page, otherwise you and your parents will have to respond to the IRS.