At what point should my dependent file his/her own tax return?

For the purposes of this article we will assume your dependent is a child or young adult. 

If you have a child under the age of 19 or under the age of 24 and a full-time student, you should be able to claim the dependent if certain criteria are satisfied.

First, the dependent must not provide more than half of their own financial support.

Second, a dependent whose gross earned income is more than $12,200 (for tax year 2019) must file a return ( Note, if your dependent has recently made in excess of $12,200 and this will be their first time filing you can find a first-time filer checklist here: )

Third, it is important to remember the IRS differentiates between earned and unearned income. If the combination of your dependent’s taxable interest on savings, investments and all other unearned income is greater than $1100, he/she is also required to file a return.

My married child is still in college but I have agreed to pay tuition – is it deductible? Is there an age cut off for the child?

Regardless of whether your dependent is married or unmarried – the IRS rules are the same as previously stated for age and income. In order to qualify for an education deduction, you must pay qualified education expenses for a student whom you can claim as a dependent. Here are some qualified expenses: amounts paid for tuition and fees and other related expenses at an eligible education institution. 

In general, student loan interest up to $2,500 per year may be deducted as well as scholarship and fellowship grants if used only for tuition, books, fees and certain other materials, but not for room and board, travel or research.

Savings bonds used to pay for education are usually tax free – depending on when they were purchased and by whom. There are qualified tuition programs, called 529 plans. Many families use these plans to save for college expenses. The earnings from 529 plans are not taxable when used for education expense if they are considered qualified expenses.

A credit reduces the income tax you may have to pay while a deduction comes off your income and therefore reduces the amount of tax you may have to pay on that (reduced amount of) income.  Both the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) can help with the cost of higher education. However you can take only one tax-free education benefit for the same expenses per student. It’s important to understand how the AOTC and LLC credits are similar and determine how to file each one.

What else should I be aware of ?

In addition, if your dependent is required to file their own return, there are other types of taxes that you and your dependent may want to be mindful of. Among them, If the dependent is in the service industry, and tips were not reported to his/ her employer, expect Social security and Medicare taxes to be collected when filing their return. In addition to this, be aware of recaptured taxes, such as the tax from recapturing an education credit. Finally, you may be subject to additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. If the dependent is filing a return only because of this tax, the dependent can file Form 5329 by itself.