Dependent child over the age of 24

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I had included my kids as dependents until age 25 but just read the IRS regs which sets the limit for claiming them as exemptions at age 24. I'd like to include them in the economy as 0.6 of an adult until age 25, but exclude them for tax exemption purposes as of age 23.

Any suggestions? Perhaps add a taxable special receipt equal to the exemption amount per person, for age years 24 and 25? That would offset the income reduction of the tax exemption without decreasing the effect of their expenses on discretionary spending.

Perhaps ESP could deal with this automatically? Add a question in dependent definition as to whether they're a full-time student, and drop the exemption at the appropriate age? Maybe make it more sophisticated by asking how long they'll be a student?

Relevant IRS reg: http://goo.gl/AeTEX1

Thanks

Chris

Comments

Hmm... perhaps ESP already handles dependent exemptions after age 23? But my daughter is 22 in 2015, and a full-time student. ESP shows 16,274 in exemptions for 2015, i.e., 4 x 4069. (An inflation-adjusted number? The published amount is $4,000.) But it shows that same amount in 2016 and 2017, the latter being the year in which she turns 24. That's not how I read the regs. In 2018 and 2019, it looks like we have 3 exemptions but my son turns 24 in 2019, making that an invalid amount.

Further, I have both adult and child economies of scale set at 0.6 times the primary adult. For 2 kids that means discretionary expense should be 2.8 x SOL (1 + 3 x 0.6). In 2015 my SOL is 41,739 but discretionary expense is 91,847, i.e., 2.2 x SOL = 3 people.

With SOL stable at 41,739 in 2018, discretionary expense drops to 79,785. That's the first year after my daughter leaves at age 25, but my son is still around. 79,785/41,739 = 1.9. Where that number comes from, I can't tell. My daughter's birthday is in February, if that matters. Even if it does, 1.9 x SOL is far less than I'd expect with 2 adults and a dependent student in the household.

Can anyone share some insight?

Thanks

Als

Never mind on the multiple of the Standard of Living relative to Discretionary Expense. I found this topic (http://goo.gl/KyhehH) which explains that the relationship is non-linear when kids are involved.

I guess I should just assume ESP is right and I don't know what I'm doing.

Can someone from ESP comment on tax treatment of dependents over 19? Specifically, does ESP address exemption allowances correctly? Since it doesn't ask about student status, how can it?

Dan Royer's picture

If you set things so the child is still in the home, the assumption is that this gives you the tax exemption. I notice also that this situation also assumes the "cost of children" is .7 until they leave the home at whatever age. I am not sure why that "cost of children" adjustment can't be changed or adjusted after age 19 in the program UI. I could ask though.

Thanks for clarification, Dan.

At a minimum, the exemption should be dropped in the year they turn 24. Ideally, ESP should ask if they're a full-time student or disabled and, if neither, drop the exemption in the calendar year they turn 19. If they're a student, the exemption is good through the calendar year of age 23; if disabled, it's good as long as they're your dependent.

I don't think that would be hard to program. In the "Children in the household" section, add a check box for "disabled?", and a drop-down box for "full-time student through age ...". The student age drop-down shouldn't allow selection above age 23. That doesn't prevent them from sticking around in the economy, but does stop the exemption.

They have to meet other dependency tests, of course, but that's assumed by your describing them as "dependent".

I agree that, if you can set their age at leaving to 50, you also should be able to adjust the cost of children that far, as well. (I think we corresponded on that specific topic in the past?)