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Why am I getting the American Opportunity Credit? The tuition was paid in full by withdrawals from a 529 QTP plan. I thought I couldn't use both for the same expenses?
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If education expenses can be applied to a 1099-Q distribution OR an education credit, the program will allocate the expenses so that it results in a lower tax liability (or higher refund) for the taxpayer.
The 1099-Q distribution is only taxed on the interest/earnings, and if the reason the distribution is not applied to the education expenses is so that the taxpayer gets the credit, there is no penalty tax on the distribution.
The person that is issued the 1099-Q (student or owner) is liable to pay the tax.
If the tax for the student does not cause the student to meet the filing requirements, they do not need to file a return.
CLICK HERE for IRS Pub 970 Tax Benefits for Education
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