1098E.1098T issued for Student.1099Q recipient Father, Father received the $ and send it to student to pay off the loan. So Father file1099Q and student file 1098 - T&E?

[saibuy]

Clarification regarding 1099-Q, 1098-T, 1098-E 1098-E around $279 Interest Payment - issued against Borrower which is my Daughter. 1098-T $40721 (box 1) and 16000 (Box 5) issued against Student which is my Daughter 1099-Q 2 Forms from 2 different 529 account $5400 & $3024==$8424 , issues against recipient which is Father. both has "The receipeint is not the designated beneficiary" CHECKED. Amount withdrwan/Rceived from 529 and reported in 1099-Q 5400+3024 == 8424 ----- Loan Paid 5500+2924=8424 i WITHDRAW the amount and send it to my daugher and she in turn pay off the loan. Questions: 1. 1099-Q because this is issued under my name as receipent , should I need to file in my Return ( I & My wife - file as Married and filing jointly) 2. 1098 - T, 1098-E, this is issued under my daugher name, should she need to file this in her Return ( File as Single - Student), and to get the Credit of $279?

[KrisD15]

Suppling an answer would be easier if we knew if you are claiming your daughter as your dependent.

1. You would be liable for tax on that distribution since you took it and the 1099-Q was issued to you, but if it isn't taxable, you needn't enter it. 

If it isn't entered, the expenses paid cannot be used towards an education credit nor to offset other aid, such as a scholarship. same if it was used to pay student loans, the interest paid would not be a deduction. 

2. You say she is filing as single student, but is she a dependent student? 

How the 1098-T and 1098-E is entered depends on if the student is a dependent.

Time living away at school is the same as living at home. 

The issue is if the student supplies more than half their own support. (they usually do not)

Tuition paid was reported as 40,000 in Box 1 of the 1098-T. If scholarships plus the distribution totaled only 24,424 (16,000 + 8,424) then DO NOT allocate the distribution to the student loan payments, allocate the distribution to tuition.

That leaves over 15,000 tuition fees to apply for an education credit and the total student loan interest as a deduction. 

You can allocate the distribution to tuition even if it was withdrawn and sent as a loan payment.

IRS Pub 970 explains more about allocating education expenses. 

We might help further if we know if the student is your dependent. 

If yes, you claim the credit and the loan interest

If no, she claims the credit and the loan interest

If you are unsure if you can claim her, let us know her age and if she supplies more than half her support. 

IRS Pub 970

[Hal_Al]

@KrisD15  is correct: You do not want to allocate the the 529 distribution to student loan payments. There a $10,000 lifetime limit on paying student loans with 529 funds.  You don't want to use up $8424 of that limit when there are  some other qualified expenses available (excess tuition, room & board, and books).

Also, as KrisD15 said, what you do with the 1098-T depends on her dependent status.  Students, under 24 are not usually eligible for the American Opportunity Credit.  It is usually better if the 1098-T goes on your return.

The 1099-Q is  only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you can. 

QTP 529 QTP   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), or student loan payments,  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 don’t need it). 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! 

References:

1. 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." 
2. IRS Pub 970 states: “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”.
3. ("IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form." 

The student loan interest is only a deduction (technically, an adjustment to income), not a tax credit. So, the $279 is of limited value.  

[saibuy]

Hello KrisD15

Thanks for the response.

She is filing as "no one claim her as dependent", also in  Parent's Tax filing ( Married filing Jointly with Spouse) "Student is not claimed as dependent".  So there are 2 Tax Returns...

Usually Parent send money to her to pay college tuition, room rent, books, food and other educational expenses. In Year 2024 Parent withdraw around $8400 from her 529 Account ( Parent is owner, Student is beneficiary) so 529 provider send 1099-Q to Parent Name ( Father) as recipient. So 1099Q filed in Parents Tax Return ( This is as per Turbo Tax - "Live Tax Advisor's" (Paid) advice". In Parent's filing Student's Loan Interest not claimed. But Student's filing she claimed the Interest as the 1098T & 1098E are mentioned student name and no parents name.

[KrisD15 · Accepted solution]

To answer your specific question about Form 1099-Q it isn't taxable, so you don't need to enter Form 1099-Q. 

Yes, in your situation, if your daughter is filing as if she is not a dependent, your daughter can also claim the student loan interest that was paid. 

If you pay her college and room and board, I think you should claim her as your dependent. Does she work? How can she support herself if you pay for everything? Perhaps you should talk to someone about whether you should be claiming her, but you don't have to worry about the 1099-Q.

Usually the parent claims the college student and also uses Form 1098-T (even when it is issue to the student) to get an education credit which can lower the parents tax liability and also inflate the parents refund. 

If the student does not have a high income, they probably don't have a tax liability and the credit is reduced. 

You might ask your daughter to talk to the financial aid office at the school and they might be able to explain what's best for both her and you. 

[Hal_Al · Accepted solution]

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on himself.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $14,600), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.  TT will check that box on form 1040.

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

With the tax law change, effective 2018, most students will get the same refund whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased. However, you only qualify for an education credit or deduction, if you are not a dependent.

But, a full time unmarried student, under age 24, even if they don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. He cannot be supporting himself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit. 

You cannot claim the (up to) $1000 refundable credit if you are, or can be, claimed as a dependent by someone else.

https://ttlc.intuit.com/community/dependents/help/when-do-i-have-to-answer-yes-to-being-claimed-as-a...

[Hal_Al · Accepted solution]

There are three things you can do with your student's Qualified educational expenses (QEE):

1. Allocate then to scholarships (so that the scholarship remains tax free)
2. Use them to claim an education credit
3. Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

It does not matter what funds were used to pay what actual expenses.  At tax time,  you are free to allocate the expenses for the best outcome tax wise.*  In particular, even though you used the 529 funds for loan payments, you don't have to treat it as such.  You can allocate that distribution to room & board.  That saves the limited student loan payment option for later.  You do not have to report your any of your allocation to the IRS. You track it in your own records. 

*An exception is if the scholarship is restricted to being  used for tuition.

[saibuy]

"The issue is if the student supplies more than half their own support. (they usually do not)"

Hi, I made the mistake and I clicked  "Yes" in TurboTax Desktop Software, for this "the student supplies more than half their own support" Question and claimed $1000 American Opportunity Credit for my Student Daughter ( Individual)  in Federal filing. State & Federal taxes already e-Filed and both are accepted for Year 2024. What should I do? Should I need to Amend my Federal and State Return? Should I need to pay for efile charges again for Federal and State file in TurboTax? also where and how to file the Amended Return? and which option should I need to choose to make this answer as "No"

[KrisD15 · Accepted solution]

HERE is a link that explains how to file an amended return using TurboTax. 

For your daughter's amended return, revisit the "Personal Info" and select "Yes, someone else can claim me" "Yes, someone else will claim me"

For the reason you are amended, indicate "Change to dependent"

If she claimed the interest and she doesn't have any income, delete that entry and put it on your return. 

If you entered the Form 1098-T on her return, you can delete that form as well, but it won't matter since once she indicates that she is a dependent, the education credit (American Opportunity Tax Credit) will be eliminated. 

Most likely she will owe 1,000 to pay back that credit.  

For your amended return, claim your daughter as your dependent. 

DO NOT ENTER FORM 1099-Q since it was used for Room and Board. If it was already entered, delete it. 

(Keep it with your tax file and write "Paid Room and Board" on it.)

Enter her 1098-T and claim an education credit on your return. 

Either you or your daughter can claim the interest paid on the student loans since either you paid and you claim the interest or you gifted your daughter and she paid the interest. Take it on the return that is most likely to benefit. If your daughter has no tax liability, you claim the interest.  

She most likely will need to pay and you most likely will get an additional refund. 

[saibuy]

Hello @kris 

Regarding "For your daughter's amended return, revisit the "Personal Info" and select "Yes, someone else can claim me" 

She has earned income and W2 around $10K and her age is 21, and already filed as "Individual" accepted in IRS/State Return. Can she make this changes in Amended Return? In Parent return did not claim this student as dependent and only 1099-Q reported as it was reported in parent name. No loan interest credit or Education credit claimed in Parent return. 

[KrisD15]

Yes, she can make this change in the amended return.

It will be a lot like when you did the original return, 

To amend her return

go to the "Personal Info" section and edit here information. 

If she earned 10,000, she will have no tax liability for the earned wages but she will need to pay back the 1,000 credit.

To amend your return, 

Add your daughter as your dependent

(Personal Info Section)

Edit for your daughter if she is listed, add her if she isn't listed

Delete the 1099-Q (it is allocated to room and board) it is not reported

Deductions & Credits

Education 

ESA and 529 qualified tuition programs (Form 1099-Q

EDIT

Select NO DID NOT RECIEVE A FORM 1099-Q

Select YES to "Confirm Removal of Form 1099-Q

Enter the student's Form 1098-T into your program as well as books and supplies not reported on the 1098-T

Deductions & Credits

Education

Expenses and Scholarships (Form 1098-T) 

Enter the student's Form 1098-T and go through the interview

Select "Maximize my tax break"

Claim the student loan interest. 

Deductions & Credits

Education

Student Loan Interest Paid (Form 1098-E) 

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.”