Taxes

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LS1988

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Question - as a 3C, is DD considered a dependent on our taxes? Last year, we claimed her as she spent more than 6 months at home ... Thanks!
 
Talk to a tax professional you trust.

I spoke to the IRS for practitioners and was given a different answer than what you hear online.

fwiw - the amount paid by the student vs the parent in the worksheet doesn’t include tuition not paid by either.
 
LS1988 said:
Question - as a 3C, is DD considered a dependent on our taxes? Last year, we claimed her as she spent more than 6 months at home ... Thanks!
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A tax professional explained the issue to us. I can't say this is correct or that it is the only thing you need to consider. BUT, here is what I took away from our conversation as being significant in deciding the issue of whether a MIDN or Cadet is a dependent on the parents' tax filings:

We were told that we/parents could claim DD as a dependent for purposes of our tax filings only if we provided "more than 1/2 of DD's support." The explanation left me understanding that the issue wasn't necessarily a function of how long DD had lived at home. The way it was explained to us, considered that since a service academy provides room and board, education/tuition, and monetary compensation, we'd have to be providing some pretty significant support on our end to prove that we had provided more than 50% of DD's support. In our situation, we ended up concluding that we had not provided the required 50%+ of support. So, we did not include DD as a dependent on our taxes.

I suspect that some parents may approach their child's situation differently and so perhaps they can reach a different conclusion. I'm not vouching for the information we were provided and I expect that everyone's situation has to be analyzed on its own before a conclusion is decided.

I concur with @A1 Janitor's suggestion to talk to a tax professional you trust.
 
dddad said:
A tax professional explained the issue to us. I can't say this is correct or that it is the only thing you need to consider. BUT, here is what I took away from our conversation as being significant in deciding the issue of whether a MIDN or Cadet is a dependent on the parents' tax filings:

We were told that we/parents could claim DD as a dependent for purposes of our tax filings only if we provided "more than 1/2 of DD's support." The explanation left me understanding that the issue wasn't necessarily a function of how long DD had lived at home. The way it was explained to us, considered that since a service academy provides room and board, education/tuition, and monetary compensation, we'd have to be providing some pretty significant support on our end to prove that we had provided more than 50% of DD's support. In our situation, we ended up concluding that we had not provided the required 50%+ of support. So, we did not include DD as a dependent on our taxes.

I suspect that some parents may approach their child's situation differently and so perhaps they can reach a different conclusion. I'm not vouching for the information we were provided and I expect that everyone's situation has to be analyzed on its own before a conclusion is decided.

I concur with @A1 Janitor's suggestion to talk to a tax professional you trust.
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The IRS told me that the worksheet compares what the child pays vs what the parent pays. Tuition and room and board are paid by neither.
 
Old Enlisted Marine said:
Something to take into consideration. Who would benefit more when they are claimed? You or them? I let DS claim himself as he received a larger benefit then I would have if I tried to claim him. Just food for thought.
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When I prepare taxes - I always do them both ways and give the client the choice.

Covid money changed the equation so the child got a bigger benefit.
 
Old Enlisted Marine said:
Something to take into consideration. Who would benefit more when they are claimed? You or them? I let DS claim himself as he received a larger benefit then I would have if I tried to claim him. Just food for thought.
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Part of our ultimate calculation as well. No question that we wanted DD to see the fruits of her hard work, including associated tax benefits.
 
It's that time of year again...

I never included my son during any of his four years at USNA as a dependent. Time spent at home, tuition... It doesn't matter. It is all about financial support. It doesn't matter if an IRS rep told me something different on the phone.

My son entered USNA June 2019. The Navy provided a lot more to his financial support in the second half of 2019 than I did the first half. So I did not claim him. And yet, somehow, there are people who still include their children as a dependent all 4 years at a SA, which makes no mathemetical sense to me.

In the end, do what you think is right. But here is a publication from USMA. I wish all the academies, and especially the IRS, would put all of this in writing, so we do not have to debate about this every year:
 
It wasn’t just an IRS agent. It was the direct line for CPAs and tax lawyers to call.

Again, people can read the actual worksheets and instructions. It is a calculation of how much the child pays vs how much the parent pays. Neither writes a check to an academy.

The worksheet does not include payments made by an academy in either column. (Note that when students get free rides to universities, the IRS doesn’t count the free tuition as paid by the student in the calculations). That is the mathematics of it.

As a tax practitioner, I do not count a letter from USMA as authoritative literature. I really don’t care what the military says. When an IRS representative tells a preparer an interpretation - the preparer writes the badge number down. An IRS auditor accepts the reliance on that directive.

I wonder how many dependent exemptions were changed on audit.

As everyone knows - the tax code isn’t necessarily black and white. It is gray. Best advice is to let your professional make the decision for you. If your professional is in doubt, they can call the IRS for guidance.

It isn’t an honor code offense to avoid paying taxes.
 
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I suspect you could check with 5 different tax preparers and get 5 different answers. I suspect you could talk to 5 different IRS agents, and get 5 different answers.

Tax law is, indeed, grey. And inconsistent. And confusing. Imo only, the spirit of the law and how you interpret and apply it also comes into play. They are also adults and at some point should be considered as such, in all areas (that’s mom law. Not tax law 😂).

A SA isn’t a ‘free ride’ scholarship. It’s unique. They are indeed military AD, and receive a paycheck (different than tuition) and are issued tax forms. They are provided insurance. Dental. Vision. Great link provided by @brewmeist.

Agree with @A1Janitor to do you. Along with your advisor. And if you want to have some real fun? Call the IRS, a few times, and take the most common answer….

Whatever you do, make sure you and your newly minted young adult are on the same page as far as dependency. My oldest was pretty excited about the first time, big windfall he got. And spent. And then had to pay back bc he wasn’t independent, but rather our dependent.
 
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In my humble opinion, it would be pretty hard to say you provided over 50% of his/her support after the first year at an academy.
They are employed. They have a W2 with wages and health insurance provided by their employer, aka Uncle Sam. Parents don‘t provide room and board or meals. The exemption is only $500 if you do claim them.
They absolutely don’t qualify for education credits. Service Academies do not issue 1098-T forms and are not “eligible institutions“ for the education credits. So let them be independent and file their own return. They should get a refund if taxes were withheld.
Oh, and just because an IRS agent tells you something doesn’t make it so…..
27 year tax preparer here
 
Renegado said:
In my humble opinion, it would be pretty hard to say you provided over 50% of his/her support after the first year at an academy.
They are employed. They have a W2 with wages and health insurance provided by their employer, aka Uncle Sam. Parents don‘t provide room and board or meals. The exemption is only $500 if you do claim them.
They absolutely don’t qualify for education credits. Service Academies do not issue 1098-T forms and are not “eligible institutions“ for the education credits. So let them be independent and file their own return. They should get a refund if taxes were withheld.
Oh, and just because an IRS agent tells you something doesn’t make it so…..
27 year tax preparer here
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Lmao Do the worksheet and get back to me.

IRS agent from Practitioner hotline for cpas and lawyers. Not regular agent.

Providing a home while away qualifies. W-2s are minimal. Check the worksheet. What the parent writes a check for vs what the child writes a check for. Not what the academies/government pays. The child doesn’t pay room and board and tuition. ;)

34 year CPA/tax preparer here.

Advise your clients how you want. I will do the same.
 
A1Janitor said:
Lmao Do the worksheet and get back to me.

IRS agent from Practitioner hotline for cpas and lawyers. Not regular agent.

Providing a home while away qualifies. W-2s are minimal. Check the worksheet. What the parent writes a check for vs what the child writes a check for. Not what the academies/government pays. The child doesn’t pay room and board and tuition. ;)

34 year CPA/tax preparer here.

Advise your clients how you want. I will do the same.
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LMAO? Laughing My Ass off? Hmmmmm.
I’ll just disagree with you and leave it at that.
 
We didn’t claim our son (USCGA ‘25) as a dependent last year and will continue in that vein. I would say that the students are paying for their education with their commitment to serve. Which makes it very different than a scholarship at a regular university, in my opinion. Is it different for tax purposes per the IRS? That I don’t know. Good luck to everyone making these decisions!
 
Old Enlisted Marine said:
Something to take into consideration. Who would benefit more when they are claimed? You or them? I let DS claim himself as he received a larger benefit then I would have if I tried to claim him. Just food for thought.
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Exactly. If parents claim their cadet they receive a $500 non refundable credit on their tax return. Thats it. $500. Cadets should file their own taxes and possibly receive a refund depending on their withholding.
 
RJB1690 said:
We didn’t claim our son (USCGA ‘25) as a dependent last year and will continue in that vein. I would say that the students are paying for their education with their commitment to serve. Which makes it very different than a scholarship at a regular university, in my opinion. Is it different for tax purposes per the IRS? That I don’t know. Good luck to everyone making these decisions!
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Service Academies are vastly different than standard colleges. SAs do not qualify for any education credits.
 
Renegado said:
Exactly. If parents claim their cadet they receive a $500 non refundable credit on their tax return. Thats it. $500. Cadets should file their own taxes and possibly receive a refund depending on their withholding.
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Do they qualify for EIC? Lol. Not all parents are the same.

Cadets can receive refunds of withholdings even as dependents, no?
 
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