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College Kids Can Cause Tax Filing Problem

As a parent you have prided yourself on guiding your child to become a self-reliant human being. They take on seasonal or part time jobs and help, in part, pay their way in college. Now that your child is back in college for the spring semester, you go back to your routine and try not to be a helicopter parent.


Before you and your spouse accumulate your tax documents to bring to your accountant, your college student has already received their W-2 from their employer and a Form 1098-T from their college. Taking initiative, and without telling you, they go online and prepare their own taxes and excitedly await their refund.


As part of your child’s college funding package, you learned about the American Opportunity Credit which can yield up to $2,500 in a tax credit to help you as parents pay for your child’s education. You both look at each other and exclaim, “Yes, there is a Santa Claus!” During this tax filing season, your tax advisor e-files your tax return, and… your filing is rejected!


The education tax credit is taken on the tax return of the taxpayer who can claim the college student as a dependent. When not supervised the student may, in error, claim themselves on their tax return which will register a conflict in filing your tax return. While your child may receive a refund of taxes withheld, they will only qualify for a small portion of the American Opportunity Credit due to their limited income.


Your tax professional will advise you that to maximize the tax credits you expected to receive ($2,500 in American Opportuinity Credit and $500 in child tax credit), your child’s filed tax return will need to be amended by filing Form 1040X. It has to be paper filed and takes 90 days or more to process. You and your spouse will need to file an extension of time to file your own tax return. Once your child’s amended tax return has been processed, your own tax return can be e-filed.


While you expected to receive your tax refund by early spring, you now will have to wait until late summer or early fall to receive it. This is a hassle that is best avoided by being a helicopter parent! As parents, you should insist on filing your child’s taxes along with your own.


The Form 1098-T will be addressed and mailed to your child from their college and is also available through their college’s online student center. While it is in your child’s name, you as the parent are the one who uses it on your tax return. As long as there is a $4,000 or more higher difference between tuition paid (cash or loan) than scholarships or grants received, you may qualify, depending on your level of income, for the full credit for four tax years.


As accounting and tax professionals, we are here to help!