1098-T Box 1 and 5 are incorrect

[Pearl2240]

My daughter's 1098-T box 1 & 5 info are wrong. How do I adjust both entries in TurboTax?

Box 1 tuition expense is 3,000 lowered than what was paid in 2022 and Box 5 scholarship is listed 2500 higher than what she received. This 5500 difference is big because it can be use for Lifetime education credit (5th year senior due to coop program).  

 Also, can she file as an independent and take the LT edu credit if I paid part of the tuition (I received 1099Q)?

[KrisD15]

My daughter's 1098-T box 1 & 5 info are wrong. How do I adjust both entries in TurboTax?

Box 1 tuition expense is 3,000 lowered than what was paid in 2022 and Box 5 scholarship is listed 2500 higher than what she received.

On the entry screen for Form 1098-T, there is a link under Box 1 that reads "What if this is not what I paid?". Select that to edit Box 1 and enter what was paid in 2022. 

The program also asks if any amount in Box 5 was for a different year. Answer yes and enter the 2500 difference. 

Be sure to have a copy of your receipts and/or student account statement with your tax file to substantiate your numbers. 

This 5500 difference is big because it can be use for Lifetime education credit (5th year senior due to coop program).  

The American Opportunity Tax Credit can only be taken four times, so the fact that she has attended 5 years does not matter, only the number of times she claimed that credit and if she was still a Freshman, Sophomore,  Junior, or Senior in 2022. People can attend school for 10 years and still be a Junior or Senior if they did not graduate and earn the degree. 

 Also, can she file as an independent and take the LT edu credit if I paid part of the tuition (I received 1099Q)?

Determine if she is a dependent. 

Was she a student, under 24 in 2022?  Did she live at home (living at school is the same as living at home) Did she supply more than half her own support? 

If she did not supply more than half her own support, she is most likely a dependent. 

If she is a dependent, YOU claim her and the credit. 

If she is a non-dependent Taxpayer, she claims the credit. 

Whoever can claim the credit CAN claim all the expenses, no matter who paid them. 

Whoever is issued the 1099-Q is responsible for that distribution, so

     If you were issued the 1099-Q and you claim the student, you enter the 1099-Q first, then the 1098-T. If there is a credit, you get it.

     If you were issued the 1099-Q and you DO NOT claim the student, 

          EITHER you enter the 1099-Q and pay the tax on the distribution, or

          The student agrees to lower the expenses they report by the amount of the distribution you took (so the distribution is non-taxed). This can include Room and Board to be allocated to the distribution.

Again, if the American Opportunity Credit has been used 4 times already for this student, it cannot be used for this student again. 

To claim a person as a dependent, they need to be your “Qualifying child” or “Qualifying Relative”.
A person can only be claimed by one taxpayer. If the person is claimed as a dependent, they can still file a tax return, but they must mark that someone else is claiming them. 

Qualifying child
RELATIONSHIP: A qualifying child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
AGE: The child must be younger than you (or your spouse if filing jointly), AND at the end of the tax year, your child must have been under age 19 (or under 24 if a full-time student). There is no age limit if your child is permanently and totally disabled.
RESIDENCY: Your child must live with you for more than half the year. There are exceptions, such as being away at school, serving in the military, hospitalization and nursing home situations. 
SUPPORT: Your child may not have provided more than half of their own support. Scholarships and grants are not considered as support provided by the student. 
JOINT RETURN: Your child cannot file on a Married Filing Jointly” return. (The exception is if they only file to claim a refund)
Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.
Parents might also file an agreement allowing the non-custodial parent to claim a child. 

Qualifying relative
NOT A QUALIFYING CHILD: If this person can be claimed as the qualifying child by a different taxpayer, this person cannot be claimed as a Qualifying Relative. 
RESIDENCY: This person must live with you for the entire year, unless they are a “relative who does not live with you”. You can find a list in Publication 501. Your parent does not need to live with you if you support them.
GROSS INCOME: This person cannot have earned more than 4,400 in 2022
SUPPORT: You must have supplied more that half their support

[Pearl2240]

Thanks you for looking into this. 

Yes, I claimed AOTC four times already. 

She's a fifth year student studying in another state.  The first half of the year, by IRS definition, she's a dependent.  The caveat is the second half of year, she got paid 50k for working in coop program. I wasn't sure that would raise a red flag with the IRS if I claim her as a dependent.  That's why I'm filing her as a independent.

Minus actual scholarship,  we paid 15000.  8000 of that amount is distribution from 529.  So I thought on her return she can take the Lifetime Learning credit.

[KrisD15]

Yes, the Lifetime Learning credit may be taken. 

As far as her income is concerned, it depends on what she did with her earnings, used it to pay half her own support or put it into savings. 

Reduce her education expenses by your distribution. 

You needn't enter the 1099-Q if it is not taxable. 

According to the IRS:

“Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.”

You say you paid 15,000 after accounting for the scholarships. 

8,000 is the distribution which would leave 7,000.

The Lifetime Learning Credit maxes out with 10,000 expenses. 

Distributions can be used for Room and Board, and I don't know if you factored that in. The student does not need to be living in a dorm. Room and Board can be applied to a distribution for rent and food up to the amount of on-site school housing. 

These adjustments can be made several ways. 

The easiest is don't enter the 1099-Q, 

Adjust the numbers on the 1098-T if needed. 

If the distribution is allocated to tuition, lower Box 1 on the 1098-T

If the distribution is allocated to Room and Board, report the full amount of Box 1 on the 1098-T

[Hal_Al]

Q.  Can she file as an independent and take the Lifetime Learning credit (LLC) if I paid part of the tuition (I received 1099-Q)?

A. Yes. She can claim the LLC regardless of whether she qualifies as your dependent or not (she doesn't have to claim "independent" to do so).

If the student-dependent actually has a tax liability, there is a provision to allow him/her to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit.  The student must still indicate that he can be claimed as a dependent, on his return. 

She can claim the credit, even if it was you that paid the tuition. It takes $10,000 of tuition to get the maximum $2000 LLC.

You mentioned a 1099-Q. Any expenses you plan to claim to keep the 1099-Q tax free must be reduced by the amount she claims for the LLC.