If you’re a young adult living on your own, or you’re living at home or away at college, you may be wondering how to file your taxes. More specifically, can your parents still claim you as a dependent? Or does the IRS consider you independent, and should you file on your own?
There may be some occasions in which you could choose whether or not to be claimed as a dependent by your parents, but for the most part, the decision comes down to who pays the majority of your expenses.
Filing as an Independent vs. Being Claimed on Your Parents’ Taxes
Parents can claim their adult children as dependents as long as they meet certain criteria. If you’re still considered a dependent, your parents may be eligible to receive educational credits such as the American Opportunity Credit and can claim scholarships, grants and tuition payments for you.
If you’re an independent young adult and you’re not able to be claimed as a dependent by your parents, you can still take deductions for tuition paid, claim any grants and scholarships as income received for the year and can be eligible for the same educational credits. These educational credits can only be claimed once per student per filing year.
Overall, parents who claim dependent children on their tax returns may have a larger tax benefit because they reduce their overall taxable base as soon as they claim their dependent.
In most cases, the benefit to the young adult who files independently would be lower because most of the time, young adults pull in a lower income and a lower overall taxable base. Savings are theoretically greater for the parents than the child.
Of course, each tax situation is different and some families with over $80,000 adjusted taxable income may find that their income is too high to qualify for the American Opportunity Credit and similar educational credits. In that case, the benefit may shift to the independent child.
If you file independently as a young adult, you’re eligible to claim all the same credits and deductions pertinent to your tax situation as your parents would be able to claim for you, including educational credits for students and deductions for tuition paid. You can also deduct expenses for qualified tuition payments and student loan interest paid. If you are working, single, have no dependent children of your own and have an income under $15,270, you could qualify for an Earned Income Tax Credit of $519.
When Your Parents Can Still Claim You as a Dependent
The determination as to whether your parents can claim you on their taxes depends on who paid the majority of your expenses for the year. If your parents paid more than 50% of a qualifying child’s expenses, the parent can claim you as a dependent on their taxes, assuming certain criteria are met. To claim a dependent child, seven qualifications (or seven tests) must be met:
The child must not claim anyone as a dependent, even if he or she has a qualifying child of his or her own or another qualifying relative.
A qualifying child must be younger than the filer, be under the age of 19 by the end of the year, be a full-time student under the age of 24 by the end of the year or fully and permanently disabled at any point in the year.
Joint Return Test
The child is unmarried, married but does not file jointly or is married and files jointly but neither the dependent nor spouse claims a personal exemption on their return.
U.S. Citizen or Resident Test
The child is a U.S. citizen or a resident of Mexico or Canada.
The child must be the filer’s son, daughter, stepchild, eligible foster child, adopted child or a descendant (for example, grandchild). Or the child must be the filer’s brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, niece or nephew).
The child must have lived with the filer for more than half of the year, have an exemption for temporary absence such as illness, education, business, vacation or military service.
The child may not provide more than half of this or her own support, which includes lodging, food, clothing, education, medical and dental care, recreation, transportation and/or similar necessities.
In order for your parents to claim you as a dependent, you must not have provided more than half of your own support, including loans, scholarships, and grants obtained by you for educational expenses. Since it is crucial to this determination, the IRS made a handy guide to help you calculate financial support.
If you are 25 or older, live with your parents, earn less than $4,150, meet the citizenship and joint return test, then you could still be claimed by your parents as a dependent relative, regardless of if you are attending school full time.
For dependent children, there is no income limit like there is for dependent relatives. However, if you worked and gave money to your parents to help cover bills, the amount you paid toward your living expenses cannot be more than your parents provided.
For example, if you earned $10,000 at your part-time job last year and gave $8,000 to your parents to cover household expenses since you live with them, your parents must have paid over $8,001 through the year to cover the remaining of your living expenses to be able to claim you as a dependent.
When your parents claim you as a dependent on their tax return, any refund amount triggered by credits on your behalf would be sent to your parents, not to you.
When Your Parents Can’t Claim You as a Dependent
Each person can claim a personal tax exemption once, so if you filed your own taxes and claimed an exemption for yourself, your parents would be unable to claim you. Along the same lines, if your parents are separated, only one parent can claim you. In that case, the tiebreaker rule should be applied, though in most cases, the parent whom you lived with the majority of the year and who paid the majority of your expenses would claim you.
If you live with your parents and they pay most of your living expenses but you took out student loans for your tuition and books and are solely responsible for those loans (your parents didn’t co-sign), then you may be considered an independent filer. If the amount of your loans for the year was greater than the value of the living expenses paid by your parents, then you would have contributed to more than half of your living expenses and your parents cannot claim you as a dependent.
How to Dispute Dependency
There is not really a choice as to whether you are a dependent or if you file independently. If you don’t meet all of the seven criteria as outlined in the dependency test, then you cannot be claimed by your parents as a dependent. If you do, your parents should claim you on their taxes.
If you filed independently and should have been claimed as a dependent by your parents, or if they claimed you and should not have, you can dispute the dependency with the IRS. Once a person is claimed on a tax return, either by themselves or by someone else, IRS will not accept a second eFiled tax return for that person. If that is the case, take these steps:
- Contact your parents to verify that they claimed you. The IRS will not tell you who claimed you.
- Verify the correct dependent situation. Go carefully over the seven tests listed above to double-check whether you should be claimed as a dependent or should file independently.
- If you were erroneously claimed, your parent can file Form 8332 with the IRS to revoke their dependency claim on you.
- If your parents won’t revoke their claim on you, mail in a paper tax return (make sure you keep a copy for your records) and the IRS may then contact you, ask for verification of the dependency claim, and likely audit you and your parents.
There may be some circumstances in which your parents should claim you as a dependent but choose not to. In that case, you cannot claim yourself as a dependent because they should have, and when you file your taxes you would check the box “Someone can claim me as a dependent.” Continue to file as usual, though you will not be eligible for education credits or exemptions because your parents are eligible for them, not you.
Determining whether your parents can claim you on their taxes can be a pretty complicated matter. The smartest way to make sure you get it right is to use the right tax preparation software, which can walk you through the seven tests to determine if you can be considered a dependent child. That way, you’ll be absolutely sure your taxes are filed correctly.