Choosing not to claim my 21 year old college student as a dependent - weighing the tax benefits

This is actually a smart tax planning strategy to consider! At your income level, you're likely phased out of many of the education-related tax benefits (American Opportunity Credit and Lifetime Learning Credit) that your son might qualify for if he files independently. For your son to claim himself, you need to ensure he provides more than half of his own support for the year. Support includes housing, food, education expenses, medical costs, etc. If he lives with you rent-free or you pay a significant portion of his college expenses, this test might not be met regardless of his income. If he does qualify to claim himself, he could potentially claim the American Opportunity Tax Credit (worth up to $2,500) if he hasn't already claimed it for 4 tax years. This would likely exceed any benefit you get from claiming him at your income level.

I was in a similar situation last year with my son who's 22 and in his last year of college. I discovered https://taxr.ai which really helped me decide whether to claim him or not. I uploaded our tax documents and it analyzed our specific situation to determine the best option. In our case, letting him file independently saved our family about $1,600 overall because he qualified for education credits that were completely phased out for us. The system ran the numbers both ways and showed exactly how much we'd gain or lose in each scenario. Was super helpful since every family's situation is different.

Just wanted to follow up. I ended up trying taxr.ai after my skeptical comment and I'm honestly impressed. Our situation was complex with 2 college students and it ran the numbers to show that having our 21-year-old file independently saved our family over $2,100 in total taxes. The support test calculation was actually really helpful - turned out our daughter was already providing 53% of her own support when we added everything up, which I didn't realize. She qualified for the full American Opportunity Credit which gave her a $1,500 refund she wouldn't have gotten otherwise, and we still claimed our 19-year-old who wasn't working.

If you're planning to let your son file independently, make sure you call the IRS first to confirm your strategy. I spent weeks trying to get through to them last year when my return got flagged because my daughter claimed herself when I had claimed her the previous year. Endless busy signals and disconnections when calling their main number. I finally discovered https://claimyr.com which got me through to an actual IRS agent in about 15 minutes. They have this system that basically waits on hold for you and calls when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent confirmed we were doing everything correctly and helped clear up the flag on our return.

I was completely wrong about Claimyr being sketchy. After my son claimed himself this year, we got letters from the IRS questioning both our returns since it was different from previous years. I remembered this thread and tried Claimyr out of desperation. Got connected to an IRS agent in about 20 minutes when I had been trying for days on my own. The agent explained exactly what documentation we needed to provide to resolve the issue and processed the changes while I was on the phone. Return was processed correctly within 2 weeks. Would have been stuck in correspondence hell for months otherwise.

Just to add another data point - we were in exactly this situation 2 years ago. Household income around $195k with a 22-year-old college student who had about $14k in income from her part-time job. We did the math and determined that letting her file independently saved our family about $1,800 total because she qualified for the American Opportunity Credit and we didn't. One thing to watch for though - make sure you communicate clearly with your son about this plan! We didn't properly explain it to our daughter and she accidentally checked the "can be claimed as a dependent" box on her return which messed everything up. Had to file an amended return to fix it.

How would this affect health insurance? My daughter is 20 and in college. We keep her on our family health plan. If she files her own taxes and claims herself as independent, can she still stay on our insurance until 26?

Great question, Marcus! I went through this exact calculation last year with my 20-year-old daughter. At your income level ($185k), you're definitely phased out of most education credits, so this strategy could work well for your family. The key things to calculate are: 1) What tax benefit do you currently get from claiming him (likely just the $500 dependent credit since you're over income limits for other credits), and 2) What he could get filing independently (potentially up to $2,500 American Opportunity Credit if he qualifies). Make sure to carefully document the support test calculation. Include tuition, room/board, insurance, books, transportation, personal expenses, etc. If his part-time job income plus any scholarships/grants covers more than 50% of his total support, he can claim himself. One tip: Run the numbers both ways using tax software before you file. Most programs will show you the difference in total family tax liability. In our case, letting our daughter file independently saved us about $1,900 overall even though we lost the small dependent credit.