Does Household Income Include Parents?
Understand how to calculate your household income. Whether you include your parents' finances depends on your dependency status and the reason for the request.
The definition of “household income” changes depending on the reason for its calculation. Whether a parent’s income is included in this figure depends on the specific rules of the program requesting the information, such as for federal student aid or health insurance subsidies. This variability means that a person’s household income for one purpose may be significantly different from their household income for another.
Determining Your Dependency Status
Before you can determine whose income to include, you must first establish your dependency status. This classification dictates whether you are considered a separate financial unit or linked to your parents. For federal student aid, the Free Application for Federal Student Aid (FAFSA) uses a series of questions to make this determination.
Answering “yes” to any of the dependency questions generally classifies you as an independent student. For example, being 24 or older, married, a veteran of the U.S. Armed Forces, or enrolled in a master’s or doctorate program confers independent status. You are also considered independent if you have children who receive more than half of their support from you. If you answer “no” to all dependency questions, you are a dependent student and must include your parents’ financial information on your application.
Household Income for Federal Student Aid
As a dependent student applying for federal aid, the FAFSA requires your parents’ income and assets. This information is used to calculate your Student Aid Index (SAI), which determines eligibility for need-based aid like the Pell Grant. The income reported is the adjusted gross income (AGI) from your parents’ tax return, along with other untaxed income.
In cases of separation or divorce, you must report the income of the parent who provided more financial support over the past 12 months. This rule applies regardless of who claims you on their taxes. If that parent has remarried, the stepparent’s income must also be included. An independent student does not report parental income; their SAI is based on their own income and assets, and that of a spouse, if applicable.
Household Income for the Health Insurance Marketplace
The definition of household income for the Health Insurance Marketplace, established by the Affordable Care Act (ACA), differs from the FAFSA’s. For qualifying for premium tax credits, household income is based on your tax household. This includes the Modified Adjusted Gross Income (MAGI) of the tax filer, their spouse, and every person they claim as a tax dependent who is required to file a tax return. MAGI is your AGI with certain non-taxable income added back, such as tax-exempt interest.
If you are claimed as a dependent on your parents’ tax return, your household for Marketplace purposes is your parents’ household. Their income is the primary factor in determining your eligibility for subsidies. Your own income is only included in this calculation if it is high enough to meet the IRS threshold that requires you to file a tax return.
Including a Parent in Your Household
The scenario can be reversed, where an adult child includes a parent in their household income calculation. This occurs when the adult provides significant financial support for a parent. To do this, the parent must qualify as your dependent for tax purposes, which requires meeting specific IRS criteria.
To meet the support test, you must provide more than half of your parent’s total support for the year, which includes expenses like food, lodging, and medical care. If you meet this and other dependency tests, you can claim your parent on your tax return. This may allow you to file as Head of Household, which offers a larger standard deduction and more favorable tax brackets.