• Student Vehicle
    • A vehicle’s fair market value is included in the student’s total support and support provided by the student in the year of purchase only if it is registered in the child’s name.  In cases where the parents own the automobile but allow the student to use it, only the car’s operating costs borne by the parents are included in the parent’s portion of the child’s support and in total support.
  • Lodging
    • The fair rental value of lodging is included in total support and normally includes real estate taxes, repairs, and utilities.  Any additional household expenses, food and utilities (if not included in fair rental value), as well as the fair rental value are divided by the number of household members to determine the student’s proportionate share.  Any adjustments for seasonal absences should be made.
  • Payroll Taxes
    • Income taxes, Social Security and Medicare taxes paid from the student’s income are excluded from total support and support provided by the student.  As a result, only the student’s net pay is considered.
  • Scholarships
    • Total support excludes scholarships received by the student.  For example, assume that the parents contribute $15,000 to the student’s support.  The student receives a $20,000 scholarship, and contributes $4,000 to his own support.  Under this rule, the student provides less than one-half of his own support ($4,000 ÷ $19,000 = 21%) and is, therefore, a dependent of the parents.  If the scholarship was included, the student would be considered to have provided more than one-half of his own support ($24,000 ÷ $39,000 = 62%).
  • Gifts
    • Although gifts (usually from family and friends) are not taxable, they are considered support provided by the student.
  • Student Loans
    • If the student is obligated to repay a loan, it is considered support provided by the student.  If, however, the parents are the obligors, the loan proceeds are considered to be provided by the parents.
  • Section 529 Distributions (QTP Plans)
    • In general, any distribution is includible in the gross income of the student unless it is used for qualified education expenses (tuition, fees, books, supplies, and equipment required for enrollment, plus the cost of room and board).  If the distribution exceeds qualified education expenses, a portion is taxed to the student and will usually be subject to a 10% penalty tax.
    • Since the student is taxed on the QTP distributions (or excluded from the student’s gross income), they are generally considered as contributed by the student for his or her support.
  • Coverdell Education Savings Account Distributions
    • Similar to QTPs, contributions to these accounts are not tax deductible and the accounts grow tax free until distributed.  For purposes of sourcing, Coverdell distributions are treated in the same manner as  QTP’s.

For more information on Student Dependent Issues or another area of accounting, please contact Victor C. Belgiorno at 516-861-3704 or VBelgiorno@dsjcpa.com or Bob Jahelka at 516-861-3707 or BobJahelka@dsjcpa.com.