For single parents, claiming a college student as a dependent can help you qualify for the Head of Household filing status, which offers a higher standard deduction and potentially lower tax rates compared to filing as single.^[4] Generally, to claim a college student as a dependent, they must be under the age of 24 at the end of the tax year and enrolled as a full-time student for at least five months of the year.^[5]However, if the student is permanently and totally disabled, there is no age limit.^[6]The student must also meet other dependency tests, such as living with the parent for more than half the year and not providing more than half of their own support.^[7] These considerations are essential as you navigate the tax benefits associated with claiming a college student as a dependent.

Cons of Claiming a College Student as a Dependent

If your child has earned income and you claim them as a dependent, they lose the opportunity to claim their own personal exemption (when applicable in future years) and certain tax credits that could be more advantageous for them. Additionally, some education tax credits, like the AOTC and LLC, phase out at higher income levels. If your income exceeds the threshold, neither you nor your child may benefit from these credits, and in such cases, it might be more beneficial for your child to file independently and claim the credits themselves.

Claiming your child as a dependent can also affect their financial aid eligibility, as the Free Application for Federal Student Aid (FAFSA) considers parents' income and assets in its calculations.^[8]This can increase the student's Expected Family Contribution (EFC), potentially reducing need-based aid like grants, subsidized loans, and work-study opportunities.^[9] FAFSA results can influence not only federal aid but also state and institutional aid. Moreover, any misunderstanding or mistakes in claiming dependents or education credits could result in penalties, interest, or the disallowance of credits by the IRS, which can be both costly and time-consuming to resolve.

Tax Credits for College Tuition and Related Expenses

Two primary tax credits are available for parents and students to help offset the cost of college: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC was introduced as part of the American Recovery and Reinvestment Act (ARRA) of 2009, expanding and temporarily replacing the Hope Credit to provide more generous benefits and wider eligibility for taxpayers.^[10] The LLC was established earlier, under the Taxpayer Relief Act of 1997, as a more flexible option for taxpayers pursuing education beyond the first four years of college or improving job skills.^[11] Both credits were designed to make higher education more accessible and affordable for Americans by providing tax relief for qualified education expenses.

American Opportunity Tax Credit

The AOTC is available for the first four years of post-secondary education, provided the student is enrolled at least half-time in a program leading to a degree or recognized educational credential.^[12] The AOTC allows you to claim up to $2,500 per eligible student, calculated as 100% of the first $2,000 in qualified education expenses paid during the year, plus 25% of the next $2,000.^[13] However, the credit is subject to income limits, with the full amount available to taxpayers with a modified adjusted gross income (MAGI) of $80,000 or less ($160,000 or less for married couples filing jointly) for the tax year 2024.^[14] The credit begins to phase out for MAGI between $80,000 and $90,000 ($160,000 to $180,000 for married couples); Additionally, up to 40% of the AOTC is refundable, meaning you could receive up to $1,000 as a refund even if you owe no taxes.^[15]

Lifetime Learning Credit

The LLC is available for all years of post-secondary education, including undergraduate, graduate, and professional degree courses, as well as for courses taken to acquire or improve job skills, with no minimum enrollment requirement.^[16] The LLC allows you to claim up to $2,000 per tax return, calculated as 20% of the first $10,000 in qualified education expenses.^[17] However, the credit is subject to income limits, with the full amount available to taxpayers with a MAGI of $80,000 or less ($160,000 or less for married couples filing jointly) for tax year 2024.^[18] The credit begins to phase out for MAGI between $80,000 and $90,000 ($160,000 to $180,000 for married couples); and unlike the AOTC, the LLC is non-refundable, meaning it can only reduce your tax liability to zero, without providing a refund.^[19]

Requirements and Pitfalls

Only certain expenses qualify for education tax credits like the AOTC and the LLC, including tuition, fees, and course materials that are required for enrollment.^[20] However, non-qualified expenses such as room and board, transportation, and personal living costs do not count toward these credits. It’s also important to note that you cannot claim both the AOTC and the LLC for the same student in the same tax year. Additionally, you cannot use tax-free educational assistance, such as scholarships or grants, to claim these credits for the same expenses. To ensure compliance, it’s crucial to keep detailed records of all tuition payments and qualified expenses. While the IRS requires Form 1098-T^[21] from the educational institution, this form alone may not suffice if you are audited. Therefore, before claiming the AOTC or LLC, make sure you qualify and keep copies of all relevant documentation. If audited and found ineligible, you could be required to repay the credit with interest, face penalties, or even be banned from claiming these credits for up to 10 years.

When it comes to filing taxes, unmarried dependent college students must be aware of their obligations. For the tax year 2024, a dependent college student must file their own tax return if they have earned income over $13,850, unearned income over $1,250, or if their total income exceeds the larger of $1,250 or their earned income plus $400.^[22] Filing is also required if they have self-employment income over $400, owe additional taxes, or received a distribution from a health savings account or an education savings account.^[23] Even if they do not meet these thresholds, it may still be beneficial to file a return if they qualify for a tax refund. This proactive approach can help ensure that all potential tax benefits are maximized.

Typically, scholarships and grants are tax-free, but there are situations where they must be included in taxable income. If the total amount of scholarships or grants exceeds the cost of qualified education expenses, such as tuition, fees, and required course materials, the excess amount is considered taxable.^[24] Additionally, any portion of these funds used for non-qualified expenses like room and board, travel, or personal expenses becomes taxable.^[25] Scholarships or grants that require the student to perform services, such as teaching or research, are also taxable unless they are for a degree-related purpose; and finally, scholarships or grants received by non-degree candidates are generally taxable as well.^[26]

When claiming education tax credits like the AOTC and LLC, only certain expenses, such as tuition, fees, and required course materials, qualify, while non-qualified expenses like room and board do not.^[27] It's important to avoid "double-dipping" by not claiming both the AOTC and LLC for the same student in the same tax year, and you cannot use tax-free educational assistance to claim these credits for the same expenses. To protect yourself in case of an audit, keep detailed records of all tuition payments and qualified expenses, including Form 1098-T from the educational institution. If the IRS determines you were ineligible for the credits, you may be required to repay the credit with interest, face penalties, or be banned from claiming the credits for up to 10 years.^[28] Additionally, dependent college students should be aware of their tax filing requirements, especially if their income exceeds certain thresholds or they have specific types of income, as filing may still be beneficial for securing a tax refund.