As April 15 approaches, students should be aware of who supports their education — themselves or their parents.
Some college students qualify for more money in loans and scholarships because they file taxes as an independent. But students on their own before the age of 24 have no such luck if their parents still claim them as dependents.
Financial aid awards for dependent students are determined by subtracting a student’s expected family contribution from the college’s cost of attendance, according to the Department of Education.
Questions on the Free Application for Federal Student Aid (FAFSA) determine dependency status, and the parents’ income reported on the FAFSA determine the award amount.
Louis Scott, Georgia State financial aid director, said independent status affords more loan opportunities than dependents.
“If the parents’ income is high, that student may not qualify for a Federal Pell Grant, which could be related to the combined parental’ income, number of people in the household, and current students in college in the home,” he said.
However, even if students hold a job and receive no financial aid from their families, they can still be considered dependent, disqualified from more loan opportunities zàz,and greater FAFSA awards.
According to the Department of Education, an independent student is at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, someone with legal dependents other than a spouse, an emancipated minor or someone who is homeless or at risk of becoming homeless.
A student who cannot answer yes to all the questions one of dependency is considered a dependent, and has to file both their parents’ information as well as their own, otherwise the FAFSA application may be rejected for that year, according to the Department of Education.
Jack Fishman, former IRS agent and tax attorney, said college students are not necessarily independent, because the student can be claimed as a dependent up to age 23 if he or she is in college.
“The idea behind taxation is to encourage, not discourage parental contribution to college,” he said. “But if the parent and child live apart or the child is married, and does not rely on the parent whatsoever, the parent cannot claim the child on taxes,” he said.
At best, the dependent student may qualify for an unsubsidized loan from the school they choose to attend.According to the Department of Education, these types of loans have interest rates at almost 4.3 percent that are not paid for by the Department of Education as subsidized loans are.
This ends up being a nightmare for students and parents by income tax time. Independent students or their parents are eligible for either the American Opportunity Credit, available up to four years of undergraduate school and offers up to $2,500 in refunds, or the Lifetime Learning Credit, a nonrefundable unlimited credit which is about $2,000, according to the Internal Revenue Service (IRS).
A dependent student cannot claim the American Opportunity Credit or the Lifetime Learning Credit unless he or she is paying tuition and expenses towards a college education, according to the IRS.
An exemption, according to Fishman, is the specific amount one can claim per person from their income taxes for themselves or their dependents, for example, the money one contributes to their or the child’s education.
“Exemption encourages the parent to contribute to the child’s education,” he said. “The exemption can only be filed by one person, whoever gives are least 50.1 percent of the support.”
The American Opportunity Credit or the Lifetime Learning Credit require a student to have received a 1098-T tax form they get from their college after financial aid student refunds, according to the IRS.
Dependents in the U.S. paid almost $3 billion in taxes by 2011, and about 47 percent of tax returns that year filed because they met the minimum requirements to file, their income was below the minimum, to pay taxes other than income or had no reason to file, according to IRS.
Alexis Campbell, a young Georgia State English major who finances her own education, said parents could claim a child after dependency age for a number of reasons, one of which might be because of the student’s income.
“A lot of them do it because their children either don’t work or make negligible money for it to be worth doing their own taxes,” she said.
