Working Child

[RLymanC]

A question came up on the other site.
Under the new law a child cannot provide over 50% of their own support.

Question on other board was:
A working child living at home under the age of 19 GIFTS all his earnings to his parents, therefore provides zero dollars toward his own support. OK....NOT OK?????

[JON]

When questioned

It seems to me if audited the income is presumed used for support, by taxiing authorities... I believe the IRS has always follwed that although I have not seen any new cases. Other issues of "full" time student income exception etc not considered..

[Armando Beaujolais]

I got jumped on recently for being sarcastic when I said I put reindeer antlers on poor Charlie the Dog this Christmas and called him "Rudolph."

It didn't make him a reindeer. It did make him a very sad looking dog.

I'm going to start calling these situations "Rudolphs."

There's a "form vs. substance" principle that permates the Internal Revenue Code. The only time a kid is going to "gift" money to the parents is if he's a child actor and he makes loads of dough and the parents don't. Sure, you can call it a gift, and I can call Charlie a reindeer, but it doesn't make it so.

I'm all for being aggressive advocating for my clients, but I won't enter into the land of make-believe to do it.

Sarcasm aside, I'll tell you what will work. In talking about support, IRS Publication 17 says "A person's own funds are not support unless they are actually spent for support."

If the kid makes $20,000, sticks it in the bank and doesn't spend it, it's not support.

[Koss]

Support

I agree that inventing a gift that isn't really there is not a healthy approach to this issue.

But I also agree that a child's income is not defined in the same way as a child's support. I'm not going to look for it right now, but somewhere in Pub. 17 and other IRS guides, it says that savings are not treated as a support. This further supports (no pun intended) Armando's comments.

A college student over 18 but under 24 might plausibly be earning $10,000 per year. And he might be attending an inexpensive community college, where the tuition is only about $1500 per quarter. Scholarships don't count as support for this test. Student loans do count. With most student loans, the student is the borrower. That's money that the kid is spending on himself, and it's part of his support. He may have borrowed the money, but after he borrowed it, it became his money and he spent it his own educational expenses.

But the kid in my example may had half his tuition paid by a scholarship and the other half paid by his parents. He's still living at home. Of the $10,000 that he earned, if he put $7000 of it in the bank and never spent it, then I think it's pretty clear that his parents are still providing more than half of his support. Or somebody is, anyway. For a qualifying child, it doesn't matter who is providing the support, as long as the kid isn't providing more than half himself.

Burton M. Koss

https://www.usakoss.net

koss@usakoss.net