Who Can Claim University Students As Dependents?

Parents often wonder if they can claim their university-going children as dependents. This is a complex question, as the answer depends on several factors, including the child's age, living situation, and financial independence. In the UK, for instance, a child is typically considered a dependent if they are under 18 or if they are older and in full-time education. Additionally, tax implications come into play when determining dependency status. For instance, in the US, parents can usually claim their university student as a dependent on their taxes if the student is enrolled full-time and meets specific IRS guidelines. Understanding the criteria and regulations surrounding dependency status is crucial for parents and students alike to make informed decisions and receive the financial support they need.

Criteria for claiming a university student as a dependent

The ability to claim a college or university student as a dependent can make taxpayers eligible for credits and deductions, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The student loan interest deduction is also a benefit on any loans taken out or co-signed for your child.

To be able to claim your child as a dependent, they must meet the following criteria:

• Be a full-time student
• Be under the age of 24
• Have lived with you for more than half of the tax year (exceptions are made for temporary absences, such as when your child is away at school)
• Not provide more than half of their own support (including expenses such as dental or medical expenses, and college student loans)
• Not be filing a joint return (unless they are only filing to claim a refund of taxes or if there would be no tax liability for either the child or the child's spouse if they were filing separately)
• Be a citizen, resident, or national of the United States, or a resident of Canada or Mexico

If your child does not meet these criteria, they may still be your dependent if:

• You provide more than half of their support
• Their gross income (income that is not exempt from tax) is less than $4,700 (in 2023)

It is important to note that student income is not considered when determining if you can claim your college student as a dependent. The key factor is who is paying for the majority of the student's living expenses, including tuition, housing, food, transportation, and clothing costs.

Benefits for full-time students

Full-time students are usually excluded from claiming means-tested benefits, but there are some exceptions. Here are the benefits available for full-time students:

Universal Credit

Full-time students are generally not eligible for Universal Credit. However, there are exceptions to this rule. You may be able to claim Universal Credit if you are a full-time student and meet any of the following criteria:

• You are aged 21 or under, in full-time non-advanced education, and do not have parental support.
• You are responsible for a child.
• You live with your partner, and they are eligible for Universal Credit.
• You have reached the qualifying age for Pension Credit and live with a partner who is under that age.
• You have received a Migration Notice telling you to move to Universal Credit.
• You are disabled, were assessed as having limited capability for work before starting your course, and are receiving specific benefits such as Personal Independence Payment, Disability Living Allowance, or Armed Forces Independence Payment, among others.
• You are studying in full-time non-advanced education, do not receive a student loan or maintenance grant, and are available for work. This exception applies from the 1st of September following your 19th birthday, as your parents can claim benefits for you before that date.

Jobseeker's Allowance

Full-time students may be able to claim Jobseeker's Allowance during the summer holidays if they meet certain criteria, such as being a lone parent, having a partner who is also a full-time student with dependent children, being available for and actively seeking work, and having sufficient National Insurance contributions.

Income Support, Housing Benefit, and Council Tax Support

Full-time students may be able to claim these benefits depending on their age and the level of their course. If you are under 19 and enrolled in a full-time course of advanced education or are aged 19 or over and enrolled in a full-time course at any level, you may be eligible.

Employment and Support Allowance (ESA)

If you already claim ESA due to an illness or disability affecting your ability to work, you may be able to continue receiving it as a full-time student.

Carer's Allowance

Full-time students cannot usually claim Carer's Allowance, even during holidays. However, there are exceptions, such as the Carer Support Payment in Scotland, which may be available under specific circumstances.

Child Benefit

If you are a full-time student responsible for a child, you can still claim Child Benefit.

Pension Credit

Full-time students over 66 with a low income may be eligible for Pension Credit. If you receive the Guarantee Credit element, you will automatically receive the maximum Housing Benefit and Council Tax Support.

Tax credits for students

Overview

The tax benefits available to university students and their parents/guardians depend on several factors, including the student's income, age, living situation, and financial support. Here is a detailed overview of the tax credits and considerations for university students and their families.

Tax Credits for University Students

University students can take advantage of various tax credits and benefits to help with their education and living expenses. Here are some key considerations:

• Income Tax on Earnings: Students are not exempt from paying taxes on their earnings. However, they can earn up to the personal allowance (currently £12,570 per year) before tax deductions. If a student works only during holidays and has tax deducted, they can submit a tax repayment claim (form R40) to reclaim any overpaid tax.
• Student Support: University students may receive financial support in the form of grants, bursaries, or loans from the government to cover tuition fees, course costs, and living expenses. This support can impact benefit entitlements, and it is essential to understand how it may affect tax credits.
• Universal Credit: Most full-time students cannot claim Universal Credit. However, there are exceptions. For example, if you are on a full-time course leading to a postgraduate degree or higher national diploma, you can be treated as a full-time student for Universal Credit purposes.
• Other Benefits: Full-time students may be eligible for specific benefits, depending on their circumstances. For example, they can claim Child Benefit if they are responsible for a child. Additionally, students over 66 with a low income may be eligible for Pension Credit.

Tax Credits for Parents/Guardians of University Students

Parents or guardians of university students may be able to claim their child as a dependent on their taxes, which can provide tax benefits. Here are some key considerations:

• Claiming a Dependent: You can usually claim your college student as a dependent if they meet specific IRS guidelines, such as being a full-time student, being under 24 years old, and having you provide more than 50% of their financial support.
• Tax Credits and Deductions: Claiming a college student as a dependent can make you eligible for additional tax credits and deductions, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC offers a maximum annual credit of $2,500 per eligible student for the first four years of higher education. The LLC is a $2,000 tax credit available during and beyond the first four years of higher education.
• Student Loan Interest Deduction: If you have taken out loans or cosigned loans for your child's education, you may be eligible for the student loan interest deduction.
• Financial Planning: Consider financial planning options to support your child's university fees, such as investing a lump sum, paying out of income, or setting up a regular savings scheme. Additionally, explore alternatives to cash savings accounts, but be mindful of the associated risks.
• Housing Considerations: If you are considering purchasing a property for your child's accommodation during their university years, be aware of the tax implications, such as the Stamp Duty Land Tax second property surcharge and Capital Gains Tax on any increase in property value.

Both university students and their parents/guardians have several tax credits and benefits available to help with the financial burden of higher education. It is essential to stay informed about the specific requirements and eligibility criteria for each tax credit and benefit program. Additionally, understanding how student income and support impact tax credits is crucial for effective financial planning. By taking advantage of these tax benefits, families can maximise their financial resources and make university education more accessible and affordable.

Tax on student earnings

Students are not exempt from paying tax. However, individuals can earn up to a certain amount per year, before tax is deducted. This is called the personal allowance. In the UK, the personal allowance is currently £12,570 per year. In the US, students can be claimed as dependents on their parents' tax returns if they meet certain criteria.

US Criteria for Dependents

If a student is a qualifying child or qualifying relative, they may be claimed as a dependent. The criteria for a qualifying child are as follows:

• Be younger than the taxpayer (or spouse if MFJ)
• Be under 24 and a full-time student for at least five months of the year
• Live with the taxpayer for more than half the tax year (temporary absences are allowed)
• Provide less than half of their own support
• Be a US citizen, resident, or national, or a resident of Canada or Mexico

If the student does not meet the above tests, they may still be claimed as a dependent if:

• The taxpayer provides more than half of their support
• The student's gross income is less than $4,700 in 2023

Tax Credits for Non-Dependents

If a student is not claimed as a dependent, they may still be eligible for tax credits such as:

• American Opportunity Tax Credit
• Lifetime Learning Credit

UK Tax Credits

In the UK, students may be eligible for tax credits such as:

• Canada Employment Amount
• Interest paid on student loans
• Tuition, education, and textbook amounts

Student loans and grants

When it comes to student loans and grants, there are a few things to keep in mind. Firstly, student loans are not considered taxable income, but they are considered a form of support when determining dependency status. If a parent takes out a loan to pay for their child's education, it is generally considered support provided by the parent. However, if the child takes out the loan themselves and is the sole signer, it may be considered that the child is providing their own support.

In terms of grants, nontaxable scholarships do not count as a dependency exemption. However, if a student is receiving grants or loans for maintenance as part of their full-time course, they may be treated as a full-time student for Universal Credit purposes. This can impact their eligibility for certain benefits.

Additionally, parents may consider transferring income-producing assets, such as investments or shares, into a trust for their children to utilise their personal allowance and potentially reduce the tax burden on the parents. This can allow any income received on these assets to be passed directly to the children.

It is also important to note that students are not exempt from paying taxes. While they can earn up to a certain personal allowance before tax is deducted, they may still need to file a tax return and claim any overpaid tax if they work during the holidays.

Frequently asked questions