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My wife and I file jointly, with my job being the sole source of income. As of September 2016, my daughter is 18 and is a full-time student still living with us. While attending community college, she also worked at a FT/PT job last year (Wal-Mart cashier) and received a W-2 for 2016. My older daughters didn't get jobs until after moving out, so this is a new situation for me. My question is this - does she need to file her own taxes, or do I still claim her as a dependent for 2016?

Also, if still claiming her as a dependent, do I just include her income with my own? This is U.S., located in Texas.

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First of all, the two options you mentioned are not mutually-exclusive: You could claim her as a dependent, AND she could file her own taxes. Those are separate decisions.

Depending on her income for 2016, she may or may not be required to file taxes. However, even if she is not required to file, if she had any taxes withheld from her paycheck, she probably should file, as she should be getting most of it back as a refund.

For the personal exemption, either you can claim her as a dependent, or she can claim the exemption for herself on her own tax return, but not both. You can look at the rules to see if you are allowed to claim her (you probably are), and then you have a decision to make. If she is in a lower tax bracket than you, then you would save more money by claiming her as a dependent than she would save by claiming her own exemption.

To explicitly answer your final question, you never include a dependent's earned income on your tax return. Either your daughter chooses not to file (if she is not required) and the income does not appear on any tax return, or she does file and the income is reported on her own return.

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    I didn't realize that. She's definitely in a lower bracket - in fact, she made just shy of the required reporting income. I'll probably have her file anyway, since she needs to learn how. – Omegacron Feb 23 '17 at 14:57
  • @Omegacron In that case, it is most likely that your best bet is to claim her as a dependent, but still have her file taxes, since she will be getting back nearly all of the federal tax withheld from her paychecks. In addition, since she is a student, there are probably education benefits that apply, either claimed by you or by her. Figure out which benefit saves you the most. – Ben Miller Feb 23 '17 at 15:02
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    Definitely two separate questions. 1. Should you claim her or not? Based on the information you provided, you can claim her. The dependent exemption will probably save you more than it will her on tax liability. 2. Should she file a return? You've said she's just under the minimum to require filing. If she had $1 withheld, she should file the return to get that dollar. Most of the online filing services process and file 1040EZ free. Nothing to lose by filing. Could gain back a bit. – Xalorous Feb 23 '17 at 22:15
  • The second sentence of the third paragraph is wrong. There is no decision to make. If the parent is allowed to claim a dependent, the dependent is not allowed to, and vice-versa. This is a common misconception and a common error. – prl Mar 23 at 23:38
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    @prl I understand that what you have said is the letter of the law, and if both the OP and his daughter claimed their exemption, the OP would win. However, the “support test” is often subjective. If the OP and her daughter decide for whatever reason that they would rather not claim the daughter as a dependent, there is no way (or desire, really) for the IRS to show that the OP really did provide more than half of the daughter’s support. – Ben Miller Mar 24 at 12:08
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There is a flow chart that indicates if you can claim a person as a dependent here, page 17.

Reading into your situation a bit, but I am pretty sure you can claim her. Assuming:

  • She is not married
  • She derives half her living expenses from you
  • She lived with you for more than half the year.

There is no exception for income or full-time employment status.

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In most cases, the right answer is for the parent to claim the child as a dependent. The major reason for this is that the parent is usually in a higher tax bracket, so the benefit is greater to use the deduction on the parent's return. There are exceptions to this, so your best bet is to calculate the value of each. This should be usually simple because your child will probably take the standard deduction rather than itemizing.

She can still file her own taxes while you claim her as a dependent, but she will not get the standard deduction on her return.

She is required to file her own taxes if she has more than $6,300 of earned income or more than $1050 of investment income. (You can include the investment income on your own return if want to save her the trouble of filing it, but you can't do that with earned income.)

You can claim adult children unless:

  • They are married filing jointly (there are some exceptions to this rule)
  • They are over 19 years old, over 24 years old if full-time student, or if permanently disabled for children over 24
  • They lived with another parent longer than you
  • They paid more than 50% of their own expenses

You might want to let her file her own taxes if your income is too high to benefit from the American Opportunity Credit or the Lifetime Learning Credit. Alternative Minimum Tax may also make that worth considering.

Edit: the above advice applies only through tax year 2017. Starting in 2018, there are no exemptions for each child, only the child tax credit.

  • Great answer - I'll definitely look into the credits. Thanks! – Omegacron Feb 23 '17 at 14:58

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