1099Q--Enough expenses for Box2, but not Box1. Claim scholarship as income?

Forum|Forum|5 years ago
March 28, 2021
1 reply
0 views

We read some similar threads and think we might need our child to claim some scholarship money as income, but we weren't sure.

Our child received distribution from her ESA to help with college expenses.

When we filed our taxes we claimed the $4000 AOTC.

Considering the 1098T + books+ computer costs - scholarships and the $4000 we claimed there is enough costs to still cover Box2 of the 1099Q, but she's a couple hundred dollars shy of covering the full amount of Box1.

Is it really only the Box2 amount we should worry about, or should she claim enough of her scholarship as income to balance things out with an eye to Box1 instead? Again, we saw on another thread how to do that if we need to.

Thanks!

TurboTax Free Edition Online

Hal_Al

Employee

She should claim enough of her scholarship as income to balance things out with Box1.

It is only a portion of box 2 that would, otherwise, get taxed. But the tax ratio is determined by the amount of the non qualified distribution.

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

Box 1 of the 1099-Q is $5000. Since you only have $3000 of expenses, $2000 of the distribution is non qualified. She would have to declare $2000 of her scholarship as taxable, to offset that.