Can a college student living with their parents receive a recovery rebate credit (RRC)?

Question of the week: Four full-time college students have asked about the recovery rebate credit. When can a college student claim the recovery rebate credit?

February 28, 2021

Q: Can a college student living with their parents receive a recovery rebate credit?

Four college students have asked about the recovery rebate credit. In 2020, all four were full-time students who lived with their parents when not at school. Their parents did not receive EIPs for them and the students did not receive their own EIPs.

Ari was age 23 in 2020 and has always been claimed as his parents’ dependent. He said that he talked to them and they’ve agreed not to claim him as a dependent in 2020. They suggested that he file his own return to get the recovery rebate credit as it is worth more than the $500 credit they’d get for claiming him. Ari earned about $800 in 2020 from some tutoring assignments but has no other income and is supported by his parents.

Beth turned 24 in 2020 but has not yet finished school and still lives at home. She earned about $1,500 from intermittent jobs but her parents paid and continue to pay most of her expenses. They’re not sure if she is still their dependent but they agree not to claim her so she can get the RRC.

David was 21 in 2020 and lived with his father and older brother. In addition to going to school, David had a regular job and earned $17,000 in 2020 and paid for his personal expenses. David’s father and brother worked and all three contributed to household expenses.

Alina was 23 in 2020 and lived with her mother who is disabled. Her mother’s only income is social security disability benefits. She hasn’t filed a tax return in a few years and received both stimulus payments automatically. Alina’s support comes from several sources including her mother who helps out when she can, her father (her parents are divorced), grandparents and other relatives, and about $1,200 from her part-time job.

Can these four students claim the recovery rebate credit?

A: If a college student is a dependent, the student cannot claim a recovery rebate credit, even if parents agree not to claim the student.

It appears that Ari and Beth are not eligible to claim the recovery rebate credit (RRC). David is eligible for the RRC and Alina may be eligible. The issue is whether these four students may be claimed as dependents by their parents, that is, whether they are their parents’ qualifying children or qualifying relatives.

An individual who may be claimed as a dependent on another individual’s return is not eligible for the RRC. See question B1 in the IRS FAQ eligibility section. Note the language “may be claimed” and the example of a student who may be claimed on a parent’s return. This means that an individual who is a qualifying child or qualifying relative of a taxpayer is ineligible for the RRC, whether or not the taxpayer actually does or plans to claim the individual.

The facts and circumstances of each student’s situation should be examined to determine if the dependent limitation applies.

Here’s how the dependent limitation would apply to these four students. We’ll assume that they:

  • are all U.S. citizens or residents, and
  • that they are not married (two situations which could make dependency questionable).

When a college student has some income and lives with his or her parent(s) or other older relative, one issue is whether the support test for a qualifying child or qualifying relative is met. It is best to complete a support worksheet if the support test is in question.

  • To meet the support test to be a qualifying child (QC), the child must not have provided more than half of his or her own support for the year.
  • To meet the support test to be a qualifying relative (QR), the taxpayer must provide more than half of a person’s total support during the calendar year.

For the recovery rebate credit, Ari is a qualifying child and a dependent of his parents

Ari met all requirements to be claimed as his parents’ qualifying child in 2020. He was under 24, a full-time student, lived in his parents’ home more than half the year, and did not provide more than half of his own support. Thus, he was his parents’ dependent qualifying child in 2020 and not eligible for the RRC, even if they do not claim him on their 2020 return.

For the recovery rebate credit, Beth is probably a qualifying relative and a dependent of her parents.

Beth turned 24 in 2020 so she is no longer a qualifying child, regardless of her school status. However, it is likely that she is a qualifying relative. She earned only $3,000, which is under the $4,300 qualifying relative gross income limitation for 2020. Her parents continued to pay most of her expenses which indicates they pay more than half, if not most of her support. If it is correct that these two tests are met, Beth was her parents’ qualifying relative in 2020 and thus their dependent. She is not eligible for the RRC.

As with Ari, if Beth’s parents don’t claim her on their return, she is still ineligible for the credit.

For the recovery rebate credit, David is not a qualifying child of his father or brother.

David had sufficient income in 2020 to pay his own expenses and contribute significantly to household expenses. Because he provided more than one-half of his own support, he is not a qualifying child of his father or brother and thus not a dependent. It is best to complete a support worksheet to make sure this is correct. Assuming it is, David can file a non-dependent tax return and claim the RRC.

For the recovery rebate credit, Alina may not be a qualifying child if an exception applies.

For Alina, an exception under proposed regulations may apply that would allow her to claim the RRC. (Note: the proposed regulations were issued in 2017. They have not been finalized but taxpayers are permitted to apply them. Parts of the proposed regulations pertaining to multiple support agreements and other areas have been withdrawn.)

Prop. Reg. §151-1(a)(2)(i) states “an individual is not a dependent of a person if that person is not required to file an income tax return under section 6012 [the section that pertains to filing requirements] and either does not file an income tax return or files an income tax return solely to claim a refund of estimated or withheld taxes.”

Alina meets all the requirements to be a qualifying child of her mother, keeping in mind that her mother doesn’t need to provide any particular level of support as long as Alina isn’t self-supporting. However, her mother apparently doesn’t have a tax return filing requirement. If that’s the case, Alina would not be treated as her mother’s qualifying child.

Use caution here. If Alina’s mother is filing a tax return after all – for example, if she did not get both EIPs for some reason and is claiming her own RRC – then she is a tax return filer for purposes of the proposed regulation. Here, Alina’s mother was identified as a social security recipient and received EIP1 and EIP2 using the process built for social security recipients; she did not file a tax return in 2019 and does not need to file a tax return in 2020 to claim the RRC.

You’ll need to get more information from Alina to verify her mother’s filing situation before applying the exception. If the exception does apply and her mother is not a taxpayer, Alina could file a tax return as a non-dependent and claim the RRC.

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