1099-Q and 1098-T

[AnnK1]

Ah, let me try again. I thought I entered the 1098T but it said I couldn’t use it for my return based in my AGI. I’ll try again. 

Thank you

[AmyC]

If your income is too high, you will not qualify for the credit but at least you won't have to pay! The Q could go on your return, it is just that student income is always less than the parents - so cheaper taxes!

The phaseout for  AOTC is:

$80,000-$90,000 or

$160,000- $180,000 MFJ

[AnnK1]

Thank you. I don’t know what I am doing wrong. Turbo tax won’t let me enter the 1099Q. I tried to enter the 1098T first and it said I won’t qualify. So I’m not sure what to do. My child has a small part time income, but if I put the 1099q on her return, now she owes money. And I cannot enter the 1098t on her return since she is being claimed a dependent. I’m lost in what to do from here other than going to a tax preparer or find a CPA. 

[AmyC]

@AnnK1  Calm, now, first things first.

Let's start with the 1098-T.

• The program did not tell you she needs to report income. That means box 1 is bigger than box 5. More money spent on education that scholarships received.
• The program did tell you that you are not eligible due to your income. Tuck the 1098-T away in the tax file.

The 1099-Q, was it all used for room and board and qualified education expenses? Then nobody claims it anywhere, it just tucks away in the tax file.

If there were scholarships near the education expenses, so only a little bit of money was spent on school and it came from the 1099-Q, there is money left to cover room and board and food on the go. If there is still some money left over from the 1099-Q, then your daughter will report it.

Example:

1098-T box 1 $20,000  box 5  $18,000 this would mean only $2,000 plus other education expenses were paid by you.

1099-Q for $20,000 so the Q pays for the $2,000 above plus books and misc school supplies of $1,000. This leaves $17,000.

$10,000 for room and board is reasonable depending on your area, it could be more.

$7,000 left as income to go on your daughter's return.

Do you see how much smaller numbers would not be worth bothering about? 

[madmanc20]

@AnnK1 I also remember TTax telling me no tax benefit with 1098-T but needs to be entered or it won't let you enter 1099Q with dependent's tax ID. I had this exact problem. I recall the UI was clunky around this area and I entered 1098-T somehow, just don't remember how now. After that, 1099-Q with child tax ID could be entered.

Often, I jump back and forth with guided mode and forms. Sometimes that gets through where TTax guide mode is too confusing.

[MarilynG1]

@madmanc20 If you don't qualify for an Education Credit by entering your 1098-T, you don't need to enter it it your return. Just keep it for your records. 

Or, if the student files their own return and can get a benefit (Box 1 is larger than Box 5), they could report it in their return. 

This article has detailed info on Form 1098-T.  

If your 1099-Q distribution was used for Qualified Education Expenses, you don't need to enter it in any tax return. 

Click this link for more info on Form 1099-Q. 

[AnnK1]

I think I got it. Not sure but I think. 
her 1098T -

box 1 = 15000

box 5 = 3000

the 1099Q

box 1= 16000

 All 16,000 was used for tuition, fees, and  dorm. But it looks like it includes the meal plan too.   Books we paid for out of pocket. 

So, do I have her report the diff between the 1098 and 1099Q? 
thank you for your patience. 

[AmyC]

Income options:

If your income is too high for tax deduction

1098T $15,000 - $3,000 = $12,000 paid somehow

1099-Q  $16,000 covers the $12,000 above plus $4,000 of living expenses. Tuck both forms away.

If your income qualifies:

1099Q covers more room and board, say $10,000 leaving only $6,000 towards tuition. This leaves $6,000 tuition paid out of pocket by parent for a tax credit. Add the 1098T. Tuck away the 1099-Q.

AOTC income qualifies:

less than $80,000-$90,000

or $160,000- $180,000 MFJ

The AOTC maximum is based on $4,000 out of pocket expenses.

@AnnK1

[NCperson]

@AmyC - please help me out here, if there are not $4000 of living expenses (it's unclear), then that the portion of the remainder that is income/ dividends on the original money is taxable (there is a formula) and then there is a 10% penalty on top of that. 

The strategy is to use as much of the 1099Q money as possible to cover room and board, that way the net money on the 1098T is available for the AOTC credit. 

[madmanc20]

@MarilynG1 Thanks for the note on no need to file 1098-T and 1099-Q if phased out AOTC ($180k MAGI for joint filing) Good to know. I'm assuming this is true as long as 1098-T > 1099-Q, otherwise need to pay tax on the 1099-Q exceeding 1098-T.

Many have suggested MAGI phased out parents should have their child claim AOTC. Went through this exercise and its mostly unlikely

- For student to claim AOTC, they need to be

      1. Not be a dependent (contribute 50% of their support INCLUDING tuition/room+board) This is a high number, higher with private school.

      2. Probably the most well paying summer internship  (say Computer Science majors) can barely approach 50% of private school total expenses. Even if paid well, student would have to use the earnings for their own support (but the parent may have already set aside 529 $ to pay for expenses) Its not impossible but just relatively rare.

      3. Most likely opportunity is probably last year of school (say 1/2 year in school, 1/2 year working) for the child to claim AOTC (full time student + > 50% of their support for the year)

[AnnK1]

Ah! I think I got it. I suddenly remembered when I cashed in savings bonds to open the 529. The interest earned in the savings bonds were not taxed since it went into the 529 plan for college costs. So this is kinda the same, funds from the 529, even the gains, as long as they go toward qualifying ed expenses based on the rules of the 529 plan, would not be taxable. But like a gentleman said earlier, I should keep receipts to show how the 529 funds were applied. I think that’s right. 

[MaryM428]

You have it exactly correct.  You do not pay taxes on the withdrawal or gain from a 529 plan as long as it goes for qualifying expenses.  You cannot use the same funds to qualify for tuition tax credits of for the education tax credits.  You can use the funds left over in the 529 plan to pay for up to $10,000 per student in student loan debt.


@AnnK1

[AnnK1]

Thank you for al your help. 
After making all the adjustments, my daughters income is below the required filing benchmarks. But I am thinking she should probably still file to show that she is a dependent on her parents return. Is that right? 

[DianeW777]

It's not necessary for her to file  if her income is below the filing requirement, but you can file a return for your her if she has any federal withholding.

[Rusty Shackleford]

What if, however:

1) We cannot claim our child as a dependent (older than 23);

2) The 1098-T is in her name (she's the full-time Student), and is 3x the 1099-Q withdrawal amount;

3) The 1099-Q lists me (her father) as the Recipient?

Do I file her 1098-T amount on my return (even though no longer a dependent), so that I can also match the 1099-Q withdrawal (which, again, is far less than the 1098-T amount)?