Difference between earned and provided for a dependent

By | December 11, 2013

Look at the following tax example and answer below:

I am a full-time student who is claimed as a dependent on my parents’ tax return. I have investment income of over $1,900, so it would appear that I need to file Form 8615, “Tax for Certain Children Who Have Investment Income of More Than $1,900”. The instructions for this form state that I have to file it if I:

“Was a full-time student over age 18 and under age 24 at the end of 2011 and did not have earned income that was more than half of the child’s support.” Link to instructions for Form 8615

This definition is slightly different from the rule for a Qualifying Dependent Child, which says:

“The child must not have provided more than half of his or her own support for the year.” Link to Pub 501

I do believe that I have earned income above half of my support, but I have not actually provided (i.e. spent on myself) more than half of my support (I’ve saved up most of my earned income). Does this mean that I can both be claimed as a dependent and NOT file Form 8615, or am I reading to much into the definitions?

Tax Answer:

The answer is… who provided for you.. not how much did you earn. And since they CAN claim you, they should. Your income is only important if you provided for yourself. Because the term earned income means that it was income earned from either working or 3rd party sick pay or retirement income from disability. So things like investment income are left out of consideration. So that first line is stating that they want to make sure that even without the investment income you are still considered a dependent.


Difference between earned and provided for a dependent

Generally the question is raised when the dependent has a high level of income as compared to their parents (a child who makes 25k and the parents make 40k), then you have to ask a lot of questions like, “Do you pay rent?”, “Do you have your own insurance?”, “Do you pay for your own food and clothing?” ect. And even getting to the point where you break it down, add it up and go through the calculations to determine if it really is over 50% of the support. So for this person in the example the parents would have to have provided at least 1/2 of the support for the full time student and that would mean meaningful support or $20,001 of income, whichever is more. But in general the answer usually is: If they pay your rent, cover you under their insurance, pay for your bills, then you are their dependent… but if you live alone, pay for your own stuff… then you are independent.