Being financially independent from your parents has significant consequences on your taxes and student aid package. Most students start seriously considering their dependent status when they realize they need to report parental income on student aid applications. Filling out a student aid application as a dependent student may seem incorrect if parents aren't contributing to your education. However, the criteria and consequences for financial independence aren't as straightforward as they may seem.
Criteria for Financial Independence
Financial independence for tax purposes is not the same as educational purposes. Young adults are considered financially independent for tax purposes if they provide more than half of their own support or don't live at home anymore. However, the government maintains a different set of criteria for student independence. With a few exceptions, students under the age of 24 are considered dependent students. Orphans, wards of the state, emancipated minors, married students, students with their own legal dependents and graduate students are considered independent, even if they are under 24.
Changing Your Status
Unfortunately, the fact that your parents don't support you isn't enough to instantly change your student status to financially independent. Students seeking to change their status must explain their situation in a Dependency Review Form that they can obtain from their school. After completing the form, a financial aid official from your university will review your application and determine whether you qualify for a change in status. Living on your own without financial assistance usually isn't enough to warrant the change; the approvals are usually reserved for extreme situations of abandonment or physical abuse.
Student Aid Consequences
Financially independent students don't have to list parental income and assets on their application for student aid. Less reported income and assets usually means a heftier student aid package for students. Students should still have parental information at the ready when applying for aid; some schools may want to know it to understand their demographics. Some schools require independent students to submit proof of their independence, so be sure to have applicable documentation on hand.
If you're financially dependent for tax purposes, your parents can't claim you as a dependent on their tax return. This generally means more tax breaks for you and less for them. Independent individuals receive a personal exemption that lowers their taxable income. You'll also be able to claim educational credits for the cost of your tuition and possibly books and supplies.
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