What are the rules about claiming dependents on a federal tax return?

"Paying her own way" would be a lot more than just health insurance and car payment. The rule is you can claim someone as a dependent if you pay more than half their support during the year AND if they make less than $3650 per year, regardless of how old they are. If your friend's daughter doesn't meet that income restriction, then the only way she could claim her as a dependent is if she were a full-time student.

The daughter wouldn't qualify as an independent student even if her mom didn't claim her, though. Rules for financial aid are even stricter than the tax rules are. For financial aid purposes, if you're not age 24 or over, you MUST consider your parents' income as part of your family contribution. That's the case even if you're not being claimed as a dependent by your parents.

There are 2 sets of rules: Qualifying Child and Qualifying Relative.

Under the Qualifying Child rule you can claim a child who is under age 19 or is under age 24 and a full time student for any part of 5 months if they lived in your home for more than half of the year (excluding temporary absences such as for school) and the child dues not provide more than half of their OWN support.

Under the Qualifying Relative rule there are no age limits, however the child must have gross income (excluding only non-taxable Social Security) of less than $3,650 and YOU must provide more than half of the child's support.

In the scenario you describe, she can possibly claim her child if the child was a full-time student for any part of at least 5 months in 2009. The child's income does factor into the support test however so does the value of the home that the mother provides. They should run the numbers on the support worksheet on page 20 of IRS Pub 501 to see if the child provides more than half of her OWN support. If she does, the mother cannot claim her.

Who claims whom on their tax returns has nothing to do with eligibility for financial aid for college. Under the financial aid rules the child is a dependent and the mother's income is a factor if the child is under age 24, not married, not in the military on full-time active duty, or is not enrolled in a graduate level or higher program or is not actually estranged from the parents. That would be the case even if the child lived on her own and paid all of her own expenses.

If the 22 year old isn't in school full time, she can't be claimed as a qualifying child. She might be able to still be claimed as a qualifying relative if her total gross income for the year is under $3650 and her mom can show that she provides over half of the daughter's support. If the daughter isn't in school full time, OR if she made over $3650, then her mom claimed her illegally.

For FAFSA financial aid calculations, her parents' income would be considered whether or not she was their dependent. But it sounds like her mom REALLY wants to have it both ways!

there are two types of dependents, a qualifying child and a qualifying relative

a child is one who has not reached age 19 in 2009 or is continuing in school until reaching age 24

the child has to be living in the household 6 months and the parent provides more than 50% of their support(living away at college is considered living at home)

a qualifying relative is one who lives the ENTIRE year in the taxpayer's household, does not earn $3650, the taxpayer provides more than 50% of support and the relative cannot be claimed on the return of anyone else

car payment, auto insurance are not considered support--the amount that would be attributable to the dependent(%) of rent(mortgage) property tax, insurance, utilities, phone, food,clothing, medical, entertainment and transportation(and that does not include buying a car) are considered 'support'

If she made over $3650 for 2009 and was not a student, he can not claim her.