My age-20 kid (dependnt) is full-time college student. She made $1767 (summr job), got a 1099Q ($8004 GD

Forum|Forum|4 years ago
February 19, 2022
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If no, then where (if anywhere) does her W2 income get reported? If yes, then how do we do American Opportunity Tax Credit?

TurboTax Online

FangxiaL

Your 20-year old kid is your dependent, so you claim him or her on your return. Take a look at her W-2 form, if there is no federal or state income tax (check Box 2 and Box 17 for tax withheld), he or she does not have to file a tax return.

If she received a Form 1098-T, you report it on your return. If the 1099-Q shows that you are the recipient (you took money out of the 529 plan and then used the money to pay for his/her college, then you are the recipient.), you also need to enter the 1099-Q form on your return.

If you are not the recipient of the 1099-Q form, you leave the form out of your return.

Here is how to enter Form 1099-Q:

Open or continue your return
Select Federal and then Deductions & Credits
Scroll down to the Education section under All tax breaks
Select Show more and then select Start or Revisit next to ESA and 529 qualified tuition programs (Form 1099-Q)
Follow the screens to enter your info.

To claim the American Opportunity Credit:

Here's how to enter your 1098-T:

Open or continue your return
Select Search and search for 1098t
Select the Jump to link in the search results
On the Do you want to enter your higher education expenses? screen, answer Yes
Answer Yes to Did you get a 1098-T for the year? and Continue
On the next screen, you can choose how you'd like to add your 1098-T. You can upload a digital copy from your computer or type it in yourself. Select which option you'd like and Continue
If you need to enter a 1098-T for someone else, continue through the screens until you get to the Your Education Expenses Summary screen, then select Add A Student

For more information, please refer to this help article: Where do I enter Form 1098-T?

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Hal_Al

Employee

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. 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. 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 also cannot count expenses that were paid by tax free scholarships. You cannot double dip!

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."

If you do enter it, enter the 1099-Q before you enter the 1098-T and other expenses.

________________________________________________________________________________________

Qualified Tuition Plans (QTP 529 Plans) Distributions

General Discussion

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

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 $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

You have $1120 of taxable income

**Alternatively; 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. Again, 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, in case of an IRS inquiry.

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."

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Most people come out better having the scholarship taxable before the 529 earnings.