Students marry but qualify as parents' dependents

[LCP]

..... for one last year.

I ran into this two years ago but don't recall the specifics.

Seems like they filed MFS and the parents were able to use the exemption and the tuition.

Can anyone point me to something I can file away.

[Koss]

Married Dependent

Yes, it can be done under certain circumstances. The married couple does not necessarily have to file separately.

The student in question must still satisfy all of the standard requirements to be a qualifying child or qualifying relative of the person who will claim them as a dependent.

The general rule is that you cannot claim a person as a dependent if:

the person is married, and
files a joint return.

The exception is that you can claim the person as a dependent, even if they are married and file a joint return, if:

the joint return is filed only to claim a refund of tax withheld, and
there would be no tax liability for either spouse if separate returns were filed.

Regardless of whether the couple files jointly or separately, the married dependent must indicate on their return that they are claimed as a dependent by someone else, i.e., not checking the box on 6a or 6b, which means that they do not get a personal exemption.

Filing separately may make sense if one or both of them has enough income to generate a tax liability. If they file separately, then the rules about the return being filed "only to claim a refund of tax withheld," and "no tax liability" are not applicable. Once they file separate returns, you just use all the regular tests for qualifying child or qualifying relative.

Keep in mind that for a qualifying child who is a full-time student under age 24, there is no income limit. The kid could have made $15,000, but if he went to Harvard or Yale, it's still possible that the parents provided more than half the support. That kid would have a tax liability. So that might be why it makes sense to file MFS.

Hope this helps.

BMK

[Dusty2004]

Well said

Koss gave a very well worded answer. One key point I would like to emphasize is if they file at all they have to be filing just to receive a full refund. If they would owe any tax at all they cannot be their parents dependent.

Dusty

[Koss]

Disagree

My reading of the IRS instructions is that the "filing only to receive a refund" requirement is applicable only if the dependent files a joint return.

The following text is from page 28 of Publication 17 (2009):

Joint Return Test

You generally cannot claim a married person as a dependent if he or she files a joint return.

Example.

You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. The couple files a joint return. Even though your daughter is your qualifying child, you cannot take an exemption for her.

Exception. The joint return test does not apply if a joint return is filed by the dependent and his or her spouse merely as a claim for refund and no tax liability would exist for either spouse on separate returns.

Example.

Your 18-year-old son and his 17-year-old wife had $800 of interest income and no earned income. Neither is required to file a tax return. Taxes were taken out of their interest income due to backup withholding so they filed a joint return only to get a refund. The exception to the joint return test applies, so you are not disqualified from claiming their exemptions just because they file a joint return. You can claim their exemptions if you meet all the other requirements to do so.

The question of whether the return is filed only to claim a refund does not arise unless the dependent files a joint return. If the filing status of a dependent is MFS, then there are no special rules. It's no different than a dependent using the filing status single. Unless the filing status is MFJ, the question of whether they have a tax liability is irrelevant.

Put another way: The "filing only to get a refund" is an exception to the joint return test. If the person does not file a joint return, you don't need an exception to that test.

BMK

[Larmil]

My reading of the IRS instructions is that the "filing only to receive a refund" requirement is applicable only if the dependent files a joint return.

The following text is from page 28 of Publication 17 (2009):



The question of whether the return is filed only to claim a refund does not arise unless the dependent files a joint return. If the filing status of a dependent is MFS, then there are no special rules. It's no different than a dependent using the filing status single. Unless the fling status is MFJ, the question of whether they have a tax liability is irrelevant.

Put another way: The "filing only to get a refund" is an exception to the joint return test. If the person does not file a joint return, you don't need an exception to that test.

BMK

I had the exact situation last year and I agree with you. My client's daughter filed MFS and was claimed on her parents return. Had the daughter filed MFJ there would have been a tax liability.

[Koss]

Confusing Rules

I stand by my previous post. But I can see where the confusion would arise.

If the dependent files a joint return, then the question that arises is:

Would there be a tax liability if separate returns were filed?

That's how the rule works.

If the dependent files a separate return, one does not need to ask:

Would there be a tax liability if a joint return were filed?

Nor does one need to ask if there is a tax liability on the separate return.

The is one of those "if-then" affairs that we studied back in the logic classes I took. The tax code is full of them. It's a one-way rule, i.e., if it's a dog, then it's a mammal, but that doesn't mean that if it's a mammal, then it's a dog...

It's easy to misinterpret this sort of thing if you read it too quickly. I've never really thought it through, but this is probably why so many people have trouble with the rules for EIC and HOH.

BMK

[Dusty2004]

Koss

Excellent point. I did not consider that option. Thanks!

Dusty