submitting for W-9 on behalf of student

Philip Samuelsson · Joined: 10 Feb 2008 Posts: 4

have a family member with the following scenario

mom & pop claim child under 25 as dependent. she is a full-time university grad
student and has recently won an award due to placing well in an academic case study
write-up contest. monetary award is a few thousand dollars.

since she works part-time at the uni, is the monetary award added to her income
directly, ie. assuming income of 10k and award of 5k, total income 15k or is there
something else to be aware of?

I've told mom & pop to submit the W-9 as it looks to be simply a way to certify to the
award issuing source the tax status of the award recipient but the parents are worried
about future tax implications and my non-educated guess is that they could simply take
part of the award and make an early tax payment to IRS during the year if they suspect
there would be a tax payment consequence next year

if the early tax payment is a plausible solution, is there some best way of
accomplishing this or some form to submit explaining why they are sending the payment
now instead of next year ?

they have already submitted 2007 income tax returns for everyone

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Archived from group: misc>taxes>moderated

Phil Marti · Joined: 25 Aug 2007 Posts: 2520

"Philip Samuelsson" wrote:

> mom & pop claim child under 25 as dependent. she is a full-time university
> grad student and has recently won an award due to placing well in an
> academic case study write-up contest. monetary award is a few thousand
> dollars.

First, the critical age is under 24, not 25, at the end of the tax year in
question. Second, may we assume that the tax year in question is 2008? If
so, how old will the student be 12/31/2008?

> since she works part-time at the uni, is the monetary award added to her
> income directly, ie. assuming income of 10k and award of 5k, total income
> 15k or is there something else to be aware of?

Sounds about right.

> I've told mom & pop to submit the W-9 as it looks to be simply a way to
> certify to the award issuing source the tax status of the award recipient
> but the parents are worried about future tax implications and my
> non-educated guess is that they could simply take part of the award and
> make an early tax payment to IRS during the year if they suspect there
> would be a tax payment consequence next year

This makes no sense. A payee submits a W-9 to a payor when the payor
doesn't have the payee's SSN. In any case, the parents wouldn't be
involved. The "extra" payment would also have zero effect on the parents'
taxes.

> if the early tax payment is a plausible solution, is there some best way
> of accomplishing this or some form to submit explaining why they are
> sending the payment now instead of next year

What exactly is it they're trying to accomplish? I'm lost.

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Phil Marti
Clarksburg, MD

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Philip Samuelsson · Joined: 10 Feb 2008 Posts: 4

Phil Marti wrote:
> First, the critical age is under 24, not 25, at the end of the tax
> year in question. Second, may we assume that the tax year in
> question is 2008? If so, how old will the student be 12/31/2008?

yes to both, that is, student is now 23 years old and will turn 24 during
2008, so I assume the parents will still be able to claim child as dependent
for this last year of university

> This makes no sense. A payee submits a W-9 to a payor when the payor
> doesn't have the payee's SSN. In any case, the parents wouldn't be
> involved. The "extra" payment would also have zero effect on the
> parents' taxes.

sorry if that bit was not clear. allow me to restate.
the parents are concerned over the students ability to pay extra taxes next
year (in 2009, since this award happens in 2008 and taxes for 2007 are
already done).
they wanted to make a separate tax payment during 2008 taking into account
the award payment (recall my example of 10k income and 5k award, total
income 15k) so that there would be no taxes to pay in arrears in April 2009

> What exactly is it they're trying to accomplish? I'm lost.

they (parents and child) are trying to avoid the student owing extra taxes
due to the award payment in 2008, which, as we've established will be added
to the students part-time income.

one item I have not calculated out is the 25k annual university fee, which
the parents have been paying (it allows them a modest 2k credit due to
claiming the student as dependent). But, I can't see the student claiming
that 25k fee as she makes only a modest 15k max during the entire year.

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Phil Marti · Joined: 25 Aug 2007 Posts: 2520

"Philip Samuelsson" wrote:

> yes to both, that is, student is now 23 years old and will turn 24 during
> 2008, so I assume the parents will still be able to claim child as
> dependent for this last year of university

You assume incorrectly. Since she is no longer "under 24" at the end of the
tax year, for 2008 she is not a "qualifying child." To be considered a
dependent, she must be a qualifying relative. She will fail the gross
income test for that status (from unquoted OP information), so the parents
will not be able to claim her as a dependent for 2008. Nor will they be
able to take advantage of any of her education expenses paid in 2008. See
IRS Publication 501.

This may settle the issue for the parents. The child may need to make
estimated tax payments. See Publication 505.

An explanation of the tax benefits available to the student regarding
education expenses is in Publication 970.

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Phil Marti
Clarksburg, MD

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Philip Samuelsson · Joined: 10 Feb 2008 Posts: 4

Phil Marti wrote:
> You assume incorrectly. Since she is no longer "under 24" at the end of the
> tax year, for 2008 she is not a "qualifying child." To be considered a
> dependent, she must be a qualifying relative. She will fail the gross
> income test for that status (from unquoted OP information), so the parents
> will not be able to claim her as a dependent for 2008. Nor will they be
> able to take advantage of any of her education expenses paid in 2008. See
> IRS Publication 501.

ok, just to confirm the nitty gritty, the child lives at home, 12 months of the year,
makes 10k income from part-time work at the uni and is paying (parents are paying 25k)
annual cost of tuition and will turn 24 during 2008.

thus, in all of the above, I understand the fact that disallows the dependency test is
simply the age of turning 24, not the other parts ?

thanks

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Phil Marti · Joined: 25 Aug 2007 Posts: 2520

"Philip Samuelsson" wrote:

> ok, just to confirm the nitty gritty, the child lives at home, 12 months
> of the year, makes 10k income from part-time work at the uni and is paying
> (parents are paying 25k) annual cost of tuition and will turn 24 during
> 2008.
>
> thus, in all of the above, I understand the fact that disallows the
> dependency test is simply the age of turning 24, not the other parts ?

It's a combination of the daughter's age and her income. Her age makes her
income relevant, a change from prior years, and her income makes her
ineligible.

See IRS Publication 501.

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Phil Marti
Clarksburg, MD

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Philip Samuelsson · Joined: 10 Feb 2008 Posts: 4

Phil Marti wrote:
> It's a combination of the daughter's age and her income. Her age makes her
> income relevant, a change from prior years, and her income makes her
> ineligible.
>
> See IRS Publication 501.

thank you, I've passed on all the information.

in all of the above data, is there *anything*, the parents can do to lessen the burden
of paying the 25k tuition for 2008? What I mean is that now especially the entire cost
is theirs as they will not even get the small $2000 credit for said tuition since they
can no longer claim the graduate student as dependant on their joint return.

the only comment I made to the parents was that it looks like their child will not
have any taxes to pay, provided they make the student pay the 25k herself, in that the
student would likely get back all taxes paid from the 10k (or 15k with the award)
income.

fortunately it's the last year of graduate school so not an issue in 2009

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Phil Marti · Joined: 25 Aug 2007 Posts: 2520

"Philip Samuelsson" wrote:

> in all of the above data, is there *anything*, the parents can do to
> lessen the burden of paying the 25k tuition for 2008? What I mean is that
> now especially the entire cost is theirs as they will not even get the
> small $2000 credit for said tuition since they can no longer claim the
> graduate student as dependant on their joint return.

There will be zero tax benefit for anything the parents pay in 2008 toward
the daughter's education. The value of the intagibles is for them to
decide.

> the only comment I made to the parents was that it looks like their child
> will not have any taxes to pay, provided they make the student pay the 25k
> herself, in that the student would likely get back all taxes paid from the
> 10k (or 15k with the award) income.

I'm not so sure this is true. One thing is certain. The daughter cannot
deduct every dollar of tuition she pays. (Pub 970). The daughter will
receive some tax benefit, which she could certainly give to her parents as a
tangible part of her overall effusive thanks.

--
Phil Marti
Clarksburg, MD

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