Question

Education Assistance Counts as Income

Forum|Forum|6 years ago
February 26, 2020
2 replies
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Here is my info:

Turbo Tax is stating I can’t claim an education tax break.

I enter the 1098T on my taxes as I am claiming my son as a dependent.

1098T shows $5558.00 in Box 1 and $8000.00 in Box 5

1099Q (shows me as the recipient with my SS#) shows $8916.00 in Box 1, $5228.00 in Box 2 and $3688.00 in Box 3

All covered expenses including the amount on the 1098T total $13890.00 (per Turbo Tax $6614.00 is tax free which leaves $7276.00 as adjusted qualified expenses.)

On the Student Information Worksheet Part VIII line 8 it shows Earnings Taxable as $961.00. So, the $961.00 is from the 529 withdraw being too much and this will stay on my taxes as I am the recipient on the 1098Q.

On my return TT shows a screen : It turns out child's Education Assistance Counts as Income and that $1386.00 needs entered as taxable income on my child's return. I have followed on how to enter the Taxable Education Assistance, but when I enter everything TT shows nothing is due on my child's return. Do I just enter the $1386.00 somewhere? Yet, TT won't allow me to just enter a number without valid information being entered to produce the entry.

Is it better to have my child as the 529 recipient or send it directly to the college? If going to the college, my child is still the recipient. Does it matter to the IRS who the money is sent to?

Hal_Al

Employee

Yes, for future years, Is it better to have your child as the 529 recipient. if it goes directly to the college, he is still the recipient. It does not matter to the IRS who the money is sent to. If it goes on his return, it will usually be tax at a lower rate, than on your return, although the income is subject to the "kiddie tax".

Since you have calculated the taxable amount that goes on the student's return, enter that directly. At the 1098-T screen, in TT, enter $1386 in box 5 and 0 in box 1. Make no other entries. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. If that is his only income, it is not enough to file.

You may actually be eligible for an education credit.

There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

N

NCPERSON1

all the math makes sense....if your childs income does not exceed the lower of a) earning income+ $350 or b) $12,200 AND there are no withholdings there is no need to file a federal return. The $1386 is considered earned income.

yes it does matter to the iRS. if the 529 administrator sends it directly to the school, the IRS knows what happened to the money.... but if it goes to you, they do not know whether you forwarded it on to the school.

T

tynewoodAuthor

NCperson - I was just typing to ask that question. When I added the $1386.00 to my son's return this amount was added to his wages of $8444.00. Yet, nothing was owed. He didn't meet the threshold. Thank you!!