Dependent declaration on Federal and State

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bestplans
Posts: 61
Joined: Wed Mar 12, 2014 4:20 pm

Dependent declaration on Federal and State

Post by bestplans » Wed Mar 12, 2014 4:41 pm

So glad I found this forum! Wondering if anyone here can help. I have always done my own taxes and am planning again to do them again this year. I have a son who is a part-time college student who meets all the tests for my claiming him as a dependent for tax purposes. However, I see that I cannot take any educational credits on my Federal return because my income was too high last year; however if I do not list him as a dependent for 2013 he can take the credits (and according to my tax software my tax liability does not change if I remove him as a dependent). However, on my state return (New Jersey) it does benefit me tax-wise for continuing to list him as a dependent (though not as much as the Federal benefit of the tuition tax credits). Is it legal for me to list him as a dependent on the State return but not on the Federal return in order to minimize our overall tax liability?

Calm Man
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Joined: Wed Sep 19, 2012 9:35 am

Re: Dependent declaration on Federal and State

Post by Calm Man » Wed Mar 12, 2014 5:52 pm

I wouldn't even think about NJ. Even if you are in the top bracket of 9% you are talking about 9% of $1500. If you are in the more common 6.37%, it is about $100. I wonder if your kid has enough income for the credit to actually even make a difference for him???

bestplans
Posts: 61
Joined: Wed Mar 12, 2014 4:20 pm

Re: Dependent declaration on Federal and State

Post by bestplans » Wed Mar 12, 2014 6:05 pm

Thank you! He earned about $8K last year and at least according to the H&R Block software when I enter the amount for him (from the school's 1098-T form) his eligible credit amount is over $1,000. You are correct that not taking him as a dependent costs me much less (about $200), but that's something at least. Is there any issue that you know of from an IRS perspective that requires consistency in dependent declarations between Federal and State?

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damjam
Posts: 837
Joined: Thu Mar 25, 2010 7:46 am

Re: Dependent declaration on Federal and State

Post by damjam » Wed Mar 12, 2014 6:06 pm

You can't do what you are proposing.
Also, you can not choose to give your son his personal exemption. If a person can be claimed by another they must indicate that on their return. It does not matter whether you claim him or not. Your son must file as someone who can be claimed on another's tax return.
From pub 17:
You can take one exemption for yourself unless
you can be claimed as a dependent by another
taxpayer. If another taxpayer is entitled to claim
you as a dependent, you cannot take an exemption
for yourself even if the other taxpayer
does not actually claim you as a dependent


Edited to add: If you do not claim your son, he may claim the American Opportunity Credit. But as I said, he can not get a personal exemption.

bestplans
Posts: 61
Joined: Wed Mar 12, 2014 4:20 pm

Re: Dependent declaration on Federal and State

Post by bestplans » Wed Mar 12, 2014 6:17 pm

Thanks. But as it pertains to the education credit specifically, what I have read seems to indicate that he can't take the education credit himself if:

1. He is married filing a separate return. (does not apply)
2. His income exceeds $90,000 (it does not).
3. Someone else is claiming him as a dependent.

So as I read this it would seem that my choice of whether to claim him or not as a dependent (#3) is in fact the key element that would allow him (or disallow him) from claiming the credit, even though he may not be claiming the personal exemption (which as you stated he is not).

Let me know please if I have this right, and if so whether consistency between Federal and State in this matter is mandatory as far as you know.

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damjam
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Re: Dependent declaration on Federal and State

Post by damjam » Wed Mar 12, 2014 6:25 pm

bestplans wrote:Thanks. But as it pertains to the education credit specifically, what I have read seems to indicate that he can't take the education credit himself if:

1. He is married filing a separate return. (does not apply)
2. His income exceeds $90,000 (it does not).
3. Someone else is claiming him as a dependent.

So as I read this it would seem that my choice of whether to claim him or not as a dependent (#3) is in fact the key element that would allow him (or disallow him) from claiming the credit, even though he may not be claiming the personal exemption (which as you stated he is not).

Let me know please if I have this right, and if so whether consistency between Federal and State in this matter is mandatory as far as you know.

Yes, you have it correct.
If you do not claim him on your tax return, he can claim the credit.

Most state tax returns flow from the federal return and start with the idea that all the basic things are the same, such as filing status and dependency status. But I don't know your state law and I don't know that the IRS states anything specifically on point. Perhaps someone else can answer that question.

(I will note that before this years change of position by the IRS, same sex married couples would commonly file Married filing Jointly on the state level and then differently for the federal.)

pshonore
Posts: 5740
Joined: Sun Jun 28, 2009 2:21 pm

Re: Dependent declaration on Federal and State

Post by pshonore » Wed Mar 12, 2014 7:31 pm

Your son must be enrolled at least 1/2 time as a student (sounds to me like 9 credits per semester) to get the AOC. He probably is not eligible for the refundable portion of the credit so it would be limited to whatever tax liability he has.

Forty percent of the American opportunity credit is refund-
able for most taxpayers. However, if you were under age
24 at the end of 2010 and the conditions listed below apply
to you, you cannot claim any part of the American opportunity
credit as a refundable credit on your tax return. In-
stead, your allowed credit (figured on Form 8863, Part IV)
will be used to reduce your tax as a nonrefundable credit
only.
You do not qualify for a refund if items 1 (a, b, or c), 2,
and 3 below apply to you.
1. You were:
a. Under age 18 at the end of 2010, or
b. Age 18 at the end of 2010 and your earned in(
come (defined below) was less than one-half of
your support (defined below), or
c. A full-time student over age 18 and under age 24
at the end of 2010 and your earned income (de-
fined below) was less than one-half of your sup-
port (defined below).
2. At least one of your parents was alive at the end of
2010.
3. You are filing a return as single, head of household,
qualifying widow(er), or married filing separately for
2010.

manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Dependent declaration on Federal and State

Post by manwithnoname » Wed Mar 12, 2014 7:34 pm

bestplans wrote:Thank you! He earned about $8K last year and at least according to the H&R Block software when I enter the amount for him (from the school's 1098-T form) his eligible credit amount is over $1,000. You are correct that not taking him as a dependent costs me much less (about $200), but that's something at least. Is there any issue that you know of from an IRS perspective that requires consistency in dependent declarations between Federal and State?


IRS does not care whether child is claimed as dependent on state tax return. IRS requirements for claiming child as a dependent are on P 16 of 1040 instructions.

NJ 1040 instructions for claiming child as a dependent:

Line 9 - Dependent Children
You may claim an exemption for each
dependent child who qualifies as your dependent
for Federal income tax purposes.
Enter the number of your dependent
children
in the box on Line 9.

Child can be claimed if he qualifies as a dependent for IRS purposes. NJ doesn't say that child can only be claimed as dependent for NJ if claimed on federal return.

I see disputes between parents and kids over who will claim kid as dependent all the time. Kid wants to get refund for claiming self on his/her return. Parent wants to claim kid as dependent because of larger refund. Parent usually prevails but sometimes splits refund with kid.

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