Kids in College? North Carolina Income Tax Changes for Parents

NC Income Tax

Parents are allowed to take a federal and state income tax deduction for each dependent child. However, North Carolina proposed Senate Bill 667 (Equalizer Voter Rights) in early April 2013 that will not allow parents to claim their child for state income tax purposes if their child has registered to vote at an address other than where the parent or legal guardian resides.

Many parents continue to claim their children as a dependent while their child is away at college. (Children may be claimed as dependents up until the tax year they are 24 and enrolled as a full-time student for at least five months of the year.) Children enrolled at out-of-state colleges where the state’s auto or health insurance rates are cheaper may find it more attractive to establish residency in the state where their college is located. Since public universities offer discounted tuition to in-state students, making the move to establish residency further reduces education expenses and potential student loan debt.
According to the North Carolina Department of Revenue, the amount a parent or guardian may claim is determined by the parent or guardian’s gross income and filing status, the age of the dependent, and if the dependent is physically or mentally incapable of caring for themselves:
For tax years beginning on or after January 1, 2006, the maximum expenses on which the credit is based is equal to the amounts for federal purposes – $3,000 for one qualifying dependent and $6,000 for two or more qualifying dependents. Note: Child support payments do not qualify as child and dependent care expenses. 
The bill, if passed into law, will not affect an adult child’s right to vote, but rather make it necessary for them to maintain their place of residence at their parent or legal guardian’s North Carolina home should the parent or guardian choose to claim the child as a dependent. In order for a parent to claim their child as a dependent, it also requires any motor vehicles owned by the child to be registered at their parents’ address. The bill may change how parents and their adult children choose to make claims on their taxes. If the bill passes, it will go into effect January 1, 2014. Check with a North Carolina tax attorney to learn about tools available to reduce tax implications for both parents and children.
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