Taxes

[Horb]

I finished under in May 2014 and started grad school the following September (moved into my apartment in August). I lived on campus senior year, but paid for it via loans that I'm paying back (my parents are co-signers, but do not pay the loans, I do). I'm also under 24.

 

I have no idea if I qualify as independent or dependent for taxes purposes. I'm wondering if anyone else has encountered this situation. Obviously, I'd rather qualify as independent, but unfortunately I don't get to just choose that. 

[Cheshire_Cat]

I believe loans count as you providing your own support unless your parents actually pay them back. However, if you stayed with your parents and they covered rent and food for part of the year, that may count for them.  The question is, did you cover at least half of your support this year through either loans or working? (Graduate scholarships count)  If you did, then you are independent.

[TakeruK]

Actually, I think it is kind of your choice (or your parents' choice). But first, an important question is whether or not your parents can say that they have provided for more than half of your financial expenses in 2014. If so, then they are likely to be eligible to claim you as their dependent. If they choose to do so, then you cannot file as independent (i.e. you do not get the personal exemption because they do). However, if you provided for most of your own expenses, then they are not allowed to claim you as their dependent. It seems like the tax rules are tricky in what counts as providing for you, so it's probably best for you and your parents to consult a tax advisor (or find your own information instead of trusting random unqualified internet strangers ).

 

Also, it might actually be better for you to qualify as a dependent rather than an independent. When I was in undergrad, I was not married and qualified as a dependent (Note: This was in Canada but having filed taxes in both countries for several years now, I believe this aspect is the same). It was way more advantageous for my family to claim me as a dependent than it was for me to file independently.

 

To use the personal exemption example, it basically reduces your taxable income by $4000. As a graduate student for only 4 months in 2014, it is very likely that almost all of your income falls in the lowest tax bracket (10%). However, it is also likely that your parent(s) income are in a higher tax bracket. For the sake of concrete numbers, let's say one parents' income is $60,000/year. This will put a big chunk of their taxable income in the 25% tax bracket. Reducing $4000 from their taxable income will reduce $4000 from the 25% tax bracket, saving them $1000. If you claimed your own personal exemption, you will likely only reduce your taxable income by $4000 in the 10% tax bracket, saving you only $400. In this case, it is much better for your parent(s) to claim you as a dependent.

 

My own personal example would use Canadian numbers but it's the same idea. My parents claimed me as their dependent and used their tax savings to help me pay for tuition. Everyone's family dynamic may be different, so maybe this doesn't work everywhere, but I strongly recommend using the tax software and playing with different settings to see if it can find a way to save you money (or alternatively, consult a tax advisor if you don't file your own taxes). In general, reducing taxable income of the highest tax bracket in the family tends to lead to the best results.

[Horb]

My fellowship is completely tax-free, so I'd only be taxed on the wages I made during the school year and summer, which isn't much. I've tried a few different tax-estimators and have gotten varying results, but mostly, it seems like I would get more if I filed as an independent, because of my income and the credits I can claim for student loan payments. Thank you for the comments! I'll definitely look at calculating for each type of filing.

[Faraday]

You should consider the possibility you may be required to list yourself as independent if you have moved to a new school for your graduate programs and you have to start the process of getting "in-state residency". For my programs if you don't file as an independent in your new state of residence is usually prevents you from applying for in-state tuition (if it's applicable) during that following year. Just something to consider.

[Horb]

Yeah I'm going to a private school in my home state so luckily I don't have to deal with that! 

[Crucial BBQ]

I finished under in May 2014 and started grad school the following September (moved into my apartment in August). I lived on campus senior year, but paid for it via loans that I'm paying back (my parents are co-signers, but do not pay the loans, I do). I'm also under 24.

 

I have no idea if I qualify as independent or dependent for taxes purposes. I'm wondering if anyone else has encountered this situation. Obviously, I'd rather qualify as independent, but unfortunately I don't get to just choose that. 

If you are under the age of 24 and a student your parents can claim you as a dependent if they want.  It has nothing to do with your wages or taxable income and your parents do not need your W-2s in order to claim you.  If they claim you, they get the exemption.  If they don't, even if they can, you get it.  Even if they claim you, you are still likely to get a return of your own, but not as large.  Your parents can claim the rent they paid on your apartment and/or the tuition they paid for you on their own return and you can still file as an "independent" if they do not claim you as a dependent. 

 

It is a gray area, really:  you are simultaneously independent and dependent right now and as far as Uncle Sam is concerned which one you really are depends on your parents filing status. 

 

When I was in your situation I did not check the box next to Can someone claim you as a dependent on their tax return? and filed my taxes as normal.  

Edited February 14, 2015 by Crucial BBQ

[Horb]

If you are under the age of 24 and a student your parents can claim you as a dependent if they want.  It has nothing to do with your wages or taxable income and your parents do not need your W-2s in order to claim you.  If they claim you, they get the exemption.  If they don't, even if they can, you get it.  Even if they claim you, you are still likely to get a return of your own, but not as large.  Your parents can claim the rent they paid on your apartment and/or the tuition they paid for you on their own return and you can still file as an "independent" if they do not claim you as a dependent. 

 

It is a gray area, really:  you are simultaneously independent and dependent right now and as far as Uncle Sam is concerned which one you really are depends on your parents filing status. 

 

When I was in your situation I did not check the box next to Can someone claim you as a dependent on their tax return? and filed my taxes as normal.  

 

My parents haven't paid for anything in terms of tuition, rent, etc. Even when I was in undergrad, it was paid all in loans taken out in my name, so I'm wondering if they can even file with me as a dependent because they didn't provide 51% of financial support this past year. 

[TakeruK]

You can have your parent fill this out: http://www.irs.gov/uac/Who-Can-I-Claim-as-a-Dependent%3F(or fill it out as your parent) to see if it's okay!

[Crucial BBQ]

My parents haven't paid for anything in terms of tuition, rent, etc. Even when I was in undergrad, it was paid all in loans taken out in my name, so I'm wondering if they can even file with me as a dependent because they didn't provide 51% of financial support this past year. 

I dunno.  Tax laws are not exactly easy reading.  My understanding is that if you are 18 or older, you are independent.  Then, there are a handful of ways that you can be claimed as a dependent on someone else's tax return (they claim you as a dependent, you are still independent but lose your exemption if someone claims you).  To add, if you are a college student under the age of 24 you are also a dependent, but independent, too.  

 

Did your parents claim you in the past?  If so, talk to them and ask if they will claim you this year (er, last year).

[Crucial BBQ]

You do not file as independent or dependent.  If you notice, the question asks Can someone claim you as a dependent on their tax return?  You are still expected to file either way.

[shadowclaw]

As TakeruK and CrucialBBQ have said, it's really a choice between you and your parents. The government doesn't know if your parents have been providing you with housing, food, clothing, etc. Even if you really are completely dependent on them, they don't have to claim you if they don't want to.

My parents claimed me for two years after I turned 18. During those years, I was definitely dependent on them and they could get the Hope tax credit for those two years. So they claimed me to maximize their tax refund. The American Education Opportunity tax credit didn't exist yet back then, so there wasn't as big of an advantage to keep claiming me after two years. So they stopped claiming me, even though I really was still a dependent.

It also depends on who files their tax return first. When I met my future husband, he had just gotten out of the marines and was living with his mom until he found a job and got his own place. She decided that since he lived with her for 3 months (ignoring the fact that he paid for his half of the rent, paid for her cell phone, and let her drive his car to work, among other things), she was going to claim him as a dependent. She also failed to mention this plan to anyone. So he filed his taxes first and got his regular refund. She filed later and was shocked when she got less money and a notice that the person she claimed as a dependent had filed independently. So yeah, who files first matters if you aren't in agreement.

[Horb]

Hey all,

 

So I was told my fellowship was tax-free when I started the program. However, I haven't received any tax forms regarding it and I planned to file this weekend with my accountant. I only received a 1098-T, which only notes my tuition/tuition wavers, not the fellowship. I was planning on noting the fellowship as additional income, which I know would be taxed, but without a form, I don't really want to trust anyone on this. Does anyone have any insight of fellowship taxation? It is a lump sum given each month to all first-years at the program and isn't specifically tied down to any costs (i.e. it isn't earmarked for books only or something like that). 

[TakeruK]

Hey all,

 

So I was told my fellowship was tax-free when I started the program. However, I haven't received any tax forms regarding it and I planned to file this weekend with my accountant. I only received a 1098-T, which only notes my tuition/tuition wavers, not the fellowship. I was planning on noting the fellowship as additional income, which I know would be taxed, but without a form, I don't really want to trust anyone on this. Does anyone have any insight of fellowship taxation? It is a lump sum given each month to all first-years at the program and isn't specifically tied down to any costs (i.e. it isn't earmarked for books only or something like that). 

 

From my experience and from talking to others, there are very few fellowships that are tax free. Basically, the IRS considers any money you get that is not spent on tuition or other fees (books etc.) as taxable income. However, the right thing to do would be to talk to whoever issues tax forms at your school (HR?) and ask them to issue a tax form for this income.

 

I had an internal first year fellowship (i.e. awarded by the school) and I got a 1042-S (http://www.irs.gov/uac/About-Form-1042S) which is a tax form for income paid to a foreign person, but I think my American friends received a similar form (but I don't recall the number). You might end up getting a W-2 for your fellowship, if it's paid for TA or RA work, for example.

 

For more information about taxes and fellowships, see: http://www.irs.gov/taxtopics/tc421.html.

[Horb]

Thanks for responding! I looked it up on IRS and it seemed like mine would be taxed. I haven't received any forms nor has anyone else. Perhaps I will email the Bursar's office or my DGS and see if they have a contact person. I have all of my checks which didn't have taxes taken out, so I guess I'll just add those up and have that as my earned additional income. 

[TakeruK]

Just wondering -- does the IRS have a hotline for tax questions? When I was filing Canadian taxes while living in the US for the first time, I was really really confused and the Canada Revenue Agency hotline had some very patient people that explained all of the rules to me, for free If the IRS provides a similar service, that might be a good free source of official information!