If you have a qualified child you can claim an exemption for that child on your tax return, which results in a $3,800 deduction for 2012 (up from $3,700 in 2011). Depending upon your tax bracket, that deduction can produce a substantial tax savings. To be treated as a qualified child, a child must be under the age of 19 or a full-time student under the age of 24.
Generally, children under the age of 19 who have investment income, such as interest and dividends, are also subject to the so-called “kiddie tax,” which, except for small amounts, causes the child’s income to be taxed at the parent’s marginal rates. The “kiddie tax” was implemented several years ago to curtail parents from shifting income to a child to take advantage of the child’s lower tax rates. Full-time students under the age of 24 who are not self-supporting are also subject to the “kiddie tax” rules.
So what is the definition of a full-time student? Well, the tax law definition is more liberal than you might imagine. A full-time student is one enrolled for some part of five calendar months (whether or not consecutive) in a given year for the number of hours or courses considered full-time attendance by the school that the student is attending.
The enrollment in school needn’t be for full months—or for five consecutive months. So, if the student is enrolled from mid-February to mid-June, the five-month qualification is met. On the other hand, if the student is enrolled from September to December or February to May, the student has been enrolled for only four months, and there must be full-time enrollment during at least one other month during the calendar year to meet the definition.
The full-time student designation also applies when claiming the lucrative American Opportunity Education Credit, which is based on payment of college tuition and related fees. For all but certain qualified children, claiming the credit only requires attendance for an academic period (semester, quarter, etc.). In order for parents to claim the credit for a qualified child who is over the age of 18 and under the age of 24, the qualified child must also be a full-time student.
If you have questions, please contact this office.