Does being a dependent on someone else's tax filings make them liable for your actions?
February 9, 2007 9:55 PM   Subscribe

Legal liability and auto insurance questions (fun!): Is there any reason I should purchase more than the minimum insurance coverage in my state (California)? Does being a dependent on my parents' tax filings make them liable for damages in court if I, say, caused an automobile accident?

The situation is like this: They have car insurance back in our home state, but I want to get a cheap policy for a cheap car where I'm living in CA. I got a Geico quote with the minimum legal coverage on everything, and my mom says I can't get that, since they would be personally liable for any damages I cause should they exceed what the insurance covers.

The reason she gave was that since I am a dependent on their tax forms, they are legally liable for my actions. (Even though I am 18 and not living at, or anywhere near, home.) Is this true?

Bonus question: Since they claim me as a dependent, I can't take the standard tax deduction on my decent-sized income. This makes my tax bills quite high as a percentage of my total income. They do not financially support me beyond extending their health insurance to me, which they say is only allowed by the insurance provider because they are claiming me as a dependent. Is this generally the way that parents of people 18 through 22 do it? (I am working this year but will be attending college for 4 years after that, during which I plan to have decent income.) I don't think my parents are trying to rip me off, I just think they don't really have time to figure out all of this and so they just stick with the status quo.
posted by jbb7 to Work & Money (10 answers total)
Is this generally the way that parents of people 18 through 22 do it?

In my circle, yes. I brought up being taken off as a dependent while I was paying my way through college, and they offered to send an itemized bill of my upbringing with interest compounded monthly.
Consider it a little payback for services rendered way beyond the taxes they'll get back from claiming you.
posted by jmd82 at 10:34 PM on February 9, 2007

(I'm the original poster.) Well, yes, I am forever indebted to my parents for raising me. :) I guess the real reason for the question in the last paragraph is my having paid about 30% tax on income of ~$13k in the 2005 tax year. That doesn't sound right to me. (tax brackets) And I think that given my modest but nonzero income, having my parents claim me as a dependent results in a net increase in tax liability for us as a family. They wouldn't want that.
posted by jbb7 at 11:50 PM on February 9, 2007

(From a lawyer) No. Being listed as their dependent does not make them liable for your actions. Nor would living in their home make them liable for your actions, absent a state law that imposes such liability for such things as criminal destruction of property, etc.

But this is probably what she has in mind. (1) Living in their home would invoke coverage under their policy in the event that you were in an accident and if some certain conditions applied. (2) If you move away to go to college, item (1) often still applies, particularly if you have not changed your voter registration, your driver's license, you go back home for holidays, etc. (3) Whether you are dependent on them for your support is one of the factors that would be considered. (4) If you were to be in an accident and the injuries made it worth the effort, a plaintiff's lawyer could pursue litigation under their policy and try to establish coverage. (5) Even if it is ultimately found that the policy was not legally on the hook in a given situation, the stress of dealing with a lawsuit to sort out that issue would not be pleasant.

All of the foregoing is variable depending on the states and the insurance companies involved.

Most people don't know the details of items 1-5. So in talking about these issues, they develop shorthand principles such as "they would be personally liable for any damages I cause". Either way, you get to the same result.

How much more would it cost to get $100K or $500K in coverage? Consider asking your parents to make up the difference.
posted by yclipse at 3:42 AM on February 10, 2007

IANA(Tax Attorney/Accountant/Math Major) but how did you end up paying 30% on your taxes? Are dependents taxed at their parents rate? I'm looking at the 1040ez and don't see anything about that.

(the following is not advice, but more a question from an interested 3rd party)

Looking at the 1040ez form, it looks like you still get to take the standard deduction (the 5150 one) even if someone can claim you as a dependent. If your income was 13000, I think you'd only be paying $800 in taxes (6%). Even if you didn't have any deductions, the tax table says the tax on 13000 is $1500 (12%)
posted by chndrcks at 5:14 AM on February 10, 2007

1) If your parents aren't providing more than half of your support in any given year, you are not their dependent for tax purposes and they are not allowed to list you as a dependent on their tax forms, and you should list yourself on your tax forms. jmd82 (first commenter) is describing tax fraud. If you feel indebted to your parents, you should write them a check, not be complicit with them in committing tax fraud.

2) Being a dependent for tax purposes is not the same as having legal liability for someone else's actions. Since you are no longer a minor and not living at home, they have no legal liability for you (you aren't driving their car, right?). yclipse's summary sounds good, but basically the takeaway is that you are not a minor living with your parents, you're on your own and it would be quite challenging to convince a judge that they are legally liable for you at this point, especially if, as yclipse notes, you've changed your state of residence, gotten a lease in your own name, etc. etc.
posted by jellicle at 7:11 AM on February 10, 2007

FWIW, in my circle in Canada, the standard for who claims the deductions on income tax has mainly been "whoever gets the biggest tax credit as a result". In my case, that was always my parents since they were paying a higher marginal rate than I was. And that would probably be the case most of the time.

What did vary amongst my family and friends was who got the money that came back as a result. My parents always gave it to me, but they weren't paying my tuition. A lot of friends whose parents were paying their tuition while they were in school, the parents kept the money.
posted by jacquilynne at 8:32 AM on February 10, 2007

they offered to send an itemized bill of my upbringing with interest compounded monthly.

they wanted to charge you for their decision to have you? let's face it, you were meant as a vanity project - a mirror of themselves. your being around is their choice.

you bought the car, you make the payments.
posted by krautland at 10:19 AM on February 10, 2007

how did you end up paying 30% on your taxes?

I second this question. Given that I am claimed as a dependent, and given the amount of tax I paid on somewhat less than $13,000, there is no way you owe 30% of your income as tax. It's just not possible, mathematically.

Are dependents taxed at their parents rate?

posted by oaf at 12:36 PM on February 10, 2007

Thanks for all the advice! You guys helped me convince my parents that it's worth letting me look into my past tax filings and do them on my own from now on. (I've always wanted to do this stuff on my own before, but you know how some parents can get really weird about things when it comes to money.) They also dropped their opposition to the auto insurance policy. And you guys cleared up lots of tax and insurance questions of mine.
posted by jbb7 at 3:27 PM on February 10, 2007

I know that you already got your answer, but California's minimums for insurance (the last time I checked) are really, really, low. So if you somehow total a car that is worth only $10 and someone gets injured, you already have maxed out the policy. If you can afford it, go over the minimum.
posted by Monday at 10:26 PM on February 10, 2007

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