No, she does not need to file a tax return.
You do not even need to get into the calculations of whether any of the 1099-Q is taxable. The fact that her total potential taxable income (838 + 130 = $968) is less than $1100, means she does not need to file.
A student- dependent must file a tax return for 2019 if he had any of the following:
- Total income (wages, salaries, taxable scholarship etc.) of more than $12,200.
- Unearned income (interest, dividends, capital gains or taxable portion of a 529 plan distribution) of more than $1100.
- Unearned income over $350 and gross income of more than $1100
- Household employee income (e.g. baby sitting, lawn mowing) over $2100 ($12.200 if under age 18)
- Other self employment income over $400, including box 7 of a 1099-MISC
Read on, for more info.
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You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You cannot double dip! When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
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Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship***
-$4000 used to claim the American Opportunity credit
=$3000 Can be used against the 1099-Q (usually on the student’s return)
Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)
