Took final distribution to close daughter's 529 plan. How do I report scholarship earned amounts to avoid the 10% penalty on earnings?

If you have a 1098-T reporting Scholarships in Excess of Tuition, the Taxable Scholarship Income (and the 1098-T) are reported on the Student's return (if they are required to file a return). 

Click this link for info on How to Report Taxable Scholarship Income.

If your 529 distribution did not exceed Qualified Education Expenses, you don't need to enter it in your return.  Room and board are qualified expenses for 529 distributions. 

If annual distributions exceed your adjusted qualified education expenses, you may need to report some of the earnings reported in box 2 as income on your tax return and pay an additional 10 percent tax on it. 

Click this link for details on Form 1099-Q. 

[Edited 2/22/2021 | 11:14 am]

Even if you entered some of the scholarship, as taxable income, on the student's return, you also have to enter some scholarships  on your return, in TurboTax(TT). This assume that you were the "recipient" of the 1099-Q.

That is, you have to tell TT that there was scholarship, so that it can calculate the amount and  apply the penalty exception. Scholarships received are usually  entered in box 5 of the 1098-T.  If there were additional scholarships, you'll get a chance to enter them.  Only scholarships that were used to pay expenses  can offset the penalty.  That is, do not enter scholarship amounts that are being reported as income on the student's return