Ask the taxgirl: Double Dipping on Dependents

Taxpayer asks:

Hi TaxGirl,

Great website. You have put together a stunning resource. I really have enjoyed looking around!

I have a brief question. I am 23, have a job, and live on my own. I went ahead and filed a federal return in February claiming myself as a dependent. I received a tax refund as well as the $400 Making Work Pay credit.

My parents’ very slow and procrastinating accountant called frantically to tell me I should have filed as a dependent of my parents so they can claim my college tuition deduction on their return.

My inquiry is: Do I need to return my entire refund in a 1040X amended return? I hate to have to send it back, but I don’t think I can keep either the earned income refund or the Making Work Pay credit.

Finally, do I need to send this 1040X off before the 18th? Do I have up to three years?

Thanks, TaxGirl!

taxgirl says:

My inboxes is overflowing with similar stories. One day I’m actually going to do a study of how often this happens with sons versus daughters. What you’ve described happens quite a bit. One of my readers suggested that it happens more often with sons than daughters. And of course, now I’m totally curious. But I digress…

So, a couple of things here.

One, filing an amended return is easy. The form, as you seem to know, is the federal form 1040X (downloads as a pdf). Transfer the information from your originally filed return to the amended return and then make any changes. In your case, you’re going to want to focus on Part I on page 2 – that’s the bit about personal exemptions (explain why you’re making the change at Part III, keep it simple). That will affect your taxable income and your eligibility for credits so work out the rest accordingly. You can find more details in the instructions (downloads as a pdf).

Two, there’s generally no need to return the entire refund. What you’ll want to know is figure the tax on the amended return and send a check for the new amount. You’ll enter your original refund information starting at line 17 and work backwards from there. And yes, in order to avoid penalty and interest, aim to file by April 18, 2011; the three years you’re likely referring to is the statute of limitations for claiming a refund. If you miss the deadline, it’s not the end of the world but you might have to pay a few extra dollars (the IRS will bill you for the difference).

Three, you’re also correct that you can’t claim the Making Work Pay Credit if your parents claim you as a dependent. Sorry, I know it stinks. Additionally, the Earned Income Credit isn’t always eliminated if you can be claimed as a dependent but if you don’t have a child (and I’m guessing you don’t since you didn’t mention it) or other dependent, you can’t qualify for the credit if you can be claimed as dependent on another taxpayer’s return.

Finally, promise me that you’ll check in with your parents next year before you file your return. It will make everybody much happier.

Like any good lawyer, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – On twitter at http://www.twitter.com/taxgirl and on Facebook at http://www.facebook.com/taxgirl

Comments

  1. Greg

    He says he lives on his own. Are you sure his parents can claim him?

  2. Author
    Kelly

    Greg, I didn’t make a judgment either way. The parents’ accountant says they can – and he knows their situation better than me. ;)

  3. Dorothy

    I’d make the procrastinating accountant fill out the 1040X (for no cost) and I would make the parents or accountant pay a late fee if needed. Who knows, I might even make the parents pay whatever is due back to the IRS. But that’s just me. Seems totally unreasonable to me that the last minute nature of parents and/or accountant should be her problem.

  4. Dave

    Or possibly the 23 year old college student doesn’t realize how much his parents still supoort him – but at least I bet he does his own laundry! Also, I doubt the accountant is being slow and procrastinating. Many people bring us (tax accountants) their informaion a few weeks before the deadline expecting it to be done quickly. What they don’t realize is that there may be 60 or 80 or 100 people that have brought their information to us before them. So, unless you have a special situation, you get to politely wait in line just like everyone else.
    I am sure the accountant would be happy to prepare the amended return. They are usually pretty easy. Mom & Dad would hopefully be willing to pay for it.

  5. Dorothy

    Dave, you are correct. I should know better having grown up eating dinner in the kitchen for three months because the dining room table was covered in tax forms. Accountants don’t procrastinate, more likely the parents were slow to queue up and most likely simply lack of clear communication between parents and child over the matter. Still, I think the parents would be, should be willing to pay the accountant to file the amended form and at least negotiate on paying the IRS back.

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