Parents, students may have conflicting tax filings

CNJ staff photo: Tony Bullocks Clovis Community College business and administration instructor Jan Bradburn, right, helps CCC second-year student Tiffany Wylie of Clovis prepare her income tax forms. In her first year of preparing taxes, Bradburn said “the service is provided by CCC to the community for free.”

Sharna Johnson

Parents are advised to talk to their kids about numerous topics, but even after they’ve turned 18 and gone off to college, there’s still one more important talk to have — taxes.

There are some unique tax situations faced by parents and college students under 24 that they often aren’t aware of until tax time, according to Monica Sanchez, an accounting instructor at Clovis Community College.

Sanchez also oversees tax students trained to prepare and file taxes for community members free of charge. Last year she said more than 250 returns were prepared through the program.

As legal adults at age 18, college students may be working and living as adults but still fall into some gray areas tax-wise.

A full-time college student under age 24 can be claimed as a dependent by their parents as long as the parent is providing at least half their financial support, even if they live away from home, according to tax law.

What that means for a student working while in school is they can not claim an exemption when they file their own taxes.

“You cannot claim your personal exemption if mom and dad are able to claim (you),” Sanchez said. “Often times people think that it’s up to them (to pick who claims what) but according to the IRS that’s not your decision.”

However if a student lives away from home and provides for themselves, the parents are not entitled to claim them.

Things get sticky in situations where perhaps a student still lives at home but pays rent or utilities or other situations where who is paying which bills is a little less clear, she said.

The IRS gives guidelines on what constitutes support of a student and Sanchez said she encourages students and their parents to go together and talk to an accountant, tax preparer or someone who can explain the rules to them and help them determine their situation in advance of a problem.

If those discussions don’t take place, Sanchez said it can result in a rejected return, amendments or even the need for the IRS to step in and make a ruling on who is legally entitled to the deduction.

What preparers often see is a student files their return electronically, only to have it rejected by the IRS because their parents have already claimed them or vice versa.

“If the parents have already filed then the student’s return is going to be rejected. Often times the student doesn’t understand it. They say, ‘I didn’t know that Mom and Dad were claiming me,’” she said.

“Often times I will ask the student to bring Mom and Dad in to explain the discrepancy. Most people want to do the right thing… up until this point, knock on wood, we haven’t had a problem.”

And students need to know if they will be claimed by someone at the beginning of the year so they can have their employer withhold the correct amount from their pay or they could end up owing money when they file their return.

For Eastern New Mexico University student Sam Hagelstein, even though he works part-time to offset some of his expenses, he said he doesn’t earn enough money to file taxes.

Hagelstein said his schooling is paid by a combination of grants and scholarships and his parents help where they can through providing health insurance and vehicle expenses, but economic conditions have made it harder for them.

The 20-year-old agricultural economics major said his parents claim him on their taxes.

Sanchez said all schools send out a 1098 form breaking down financial aid and expenses that have to be reported on the student’s tax return.

Another thing Sanchez said some students don’t realize is any money left over from grants or scholarships after tuition and books are paid must be claimed as income by the student.

Sanchez said it is common for area students to have more grant or scholarship money than expenses because the cost of higher education in Eastern New Mexico is typically lower than in other areas.

Sanchez said usually a student with grant or scholarship income will owe less than $100 or see a reduction in their refund, but they can plan for it by claiming less exemptions on their W4.

Hagelstein said his costs are never fully met by financial aid, so he doesn’t have to worry about having to claim it as income.

“I live on campus. It costs enough that I don’t actually receive a (financial aid) refund. I have to pay the rest out of my pocket or my parents do,” he said.

Not all dependents are dependent:

A completely separate issue but one that often confuses and frustrates students is the definition of “dependent” for financial aid purposes, said CCC Financial Aid Director April Chavez.

It doesn’t matter if a student is claimed as a dependent on their parent’s taxes or not, she said.

Under 24, unmarried and with no dependents of their own, when applying for financial aid students have to submit their parent’s tax information and can be disqualified based on their parent’s income levels even though they may not be getting any support for school.

“We see a lot of kids that are dependent by financial aid purposes, even though the (IRS and federal financial aid) definitions of dependents aren’t exactly the same,” she said.

“Students that live on their own and have been paying their own way for years (can still be dependents in terms of financial aid).”

Chavez said exceptions can be made on a case-by-case basis when there’s documentation of a dissolution of the family unit.

Call 769-4946 for an appointment for tax filing help.