529 Questions

[rrich68]

my son is 19 and going to college. He made W-2, $4,125 in summer job.  On a 1098-T, Received $1,695 in box 1 (payments received for qualified tuition and related expenses) and $2,740 in scholarships in box 5 (Scholarships or grants).  He also received a 529 from his grandpa on a 1099-Q for $8,304.  Do I put that all on my tax return or does he do a separate one even though I am claiming him on my taxes ?

If I put it on my taxes which ones do I input and where. (Can he do a seperate file for his W-2 and I use the 1098-T and 1099-Q on mine ?  

[KrisD15]

If you claim the student, you would enter the forms into your program to apply for an education credit, however if tuition was only 1,695 (box 1) and he received 2,740 in scholarships, plus another 8,304 in a distribution, there would be more aid than tuition and the student would end up claiming income. 

Is there more to the story? 

Was the distribution used for room and board? 

That would still leave scholarship income. 

Did he buy books or supplies? 

Again, you enter the education forms into your program so that your program can do the math, but you also need to have an idea about what payments went where, if anything crossed tax years and if you want the student to claim more income if that would allow you to get a credit. 

[Hal_Al]

 Q.  Do I put that all on my tax return or does he do a separate one even though I am claiming him on my taxes ?

A. No.  The 1099-Q  goes on Grandpa or the student's return depending on who was the  "recipient". 

Q.  If I put it on my taxes which ones do I input and where. (Can he do a separate file for his W-2 and I use the 1098-T and 1099-Q on mine) ?  

A.  Maybe. Based on the rough numbers, you probably put nothing about education on your return.  But, as the other reply indicated, more info is needed.  In addition to room and board and books and computer cost, we need to know if the scholarship was restricted to being used for tuition.

Here's how it usually works: you use the tuition and other qualified expenses (books and required computer) to claim the education credit (it's worth $1695+ to you).  You offset some  the 529 distribution with other available expenses (mainly room & board) and the student pays tax on his scholarship and the uncovered portion of the 529 distribution. 

Provide the following info for more specific help:

• Are you the student or parent.
• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Box 1 of the 1099-Q
• Box 2 of the 1099-Q
• Who’s name and SS# are on the 1099-Q, grandparent or student (who’s the “recipient”)?
• Room & board paid. If student lives off campus, what is school's R&B charge. 
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources
• Are you trying to claim the tuition credit (are you eligible)?
• Is the student an undergrad or grad student?

____________________________________________________________________________________

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) 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 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! 

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." 

If you do enter it, enter the 1099-Q before you enter the 1098-T and other expenses.

________________________________________________________________________________________

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

It’s complicated.

For 529 plans, there is an “owner” (grandparent in this case), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit,  that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q. 
Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (usually on the student’s return)

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

You have $1120 of taxable income  

**Alternatively; 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) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip!  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, in case of an IRS inquiry.

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." 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Most people come out better having the scholarship taxable before the 529 earnings.

[rrich68]

I am the parent. The student is my dependent. 1098-T box 1 and 5 have no 529 money included (just tuition credits and scholarships).

So far, I put the 1098-T information onto my tax return including books and computer expenses and received education credit.

The 1099-Q was from grandpa, but he put my son as the recipient, so my son got the 1099-Q in his name. 

Now, I'm working on my son's return...his W-2 income was $4,120 and I added the 1099-Q of $8,304 box 1 Gross, $4,829 box 2 Earning and $3,475 box 3 Basis.  

My son goes to a community college and they have no dorms, no on-site living so he had to rent an apartment off-campus walking distance.

Up to this point with his W-2 income ($4,120) and 1099 income($8,304) equaling $12,431 it says I owe $833 to FED.  Now of the $8,304 from the 529 income, I'm trying to pay off Room and Board expenses which totaled $6,964.  Now it says FED refund of $32.  

To verify, on my son's return I'm only showing his (W-2 + 1099-Q) - Room/Board ? (room and board paid with 529 money only)  I can show he's going to Clackamas Community College under expenses but leave the 1098-T info blank since I put that information (monies) on my tax return (the parent) as well as books/materials and computer for education credits.

[FangxiaL]

If your son's name and SSN are not on the 1099-Q form, don't enter that form on his return. 

Do not add your son's income to your tax return either. 

@rrich68

[Hal_Al]

@rrich68 said:  So far, I put the 1098-T information onto my tax return including books and computer expenses and received education credit.

That means you used all the tuition, books and computer expenses to claim the credit.  That means the $1695 tuition has been used and isn't available to be covered by tax free scholarship.  The $2740 scholarship is now all taxable income, to the student.  Your said: on my son's return I'm only showing his (W-2 + 1099-Q) - Room/Board ?  You need to add the scholarship income.   

Room & Board (R&B) are the only expenses available for the 1099-Q.  $6964 / 8304 = 83.9% of the earnings are tax free. 16.1% is taxable.  0.161 x  4829 = $779 taxable income from the 1099-Q. 

Theoretically, TurboTax (TT) will come to that conclusion. It will also generate form 5329 to claim the penalty exception (the parent claimed the tuition credit). Usually some of the income would be subject to the "kiddie tax", wherein a small portion of the income is taxed at the parent's tax rate.  Form 8615 may be generated.  But, it appears your amount is too low to generate that. 

On the student's return, enter the 1099-Q first.  Then enter the 1098-T, exactly as received. Enter book  and computer expenses and room & board separately. When asked if any of the scholarship was used for room & board, answer yes and enter the $2740.  This is necessary to make it taxable and will not  distract from Room & board being used for the 1099-Q.   In his interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is the same amount you used on your return (tuition + books & computer) .  That will put all his scholarship as income on his return.  

Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s interview.  Check the student information work sheet (part VI, line 17) to verify it was entered.  If not, the alternate workaround is  to enter 0 in box 1, when you enter the 1098-T. In that case don't enter book & computer expenses. Do enter R&B.

When you're done; the $1695 scholarship will be added to wages on line 1 of form 1040, with the notation SCH1695 to the left of line 1.  The $779 will be on line 8 of form 1040 from line 8z of Schedule 1. 

None of the wages or scholarship will get taxed (it's under $12, 550 total).  A small portion of the 1099-Q earning will get taxed.   Your $32 refund could be right, if there was withholding on the W-2. 

[Hal_Al]

Above reply edited. 

[rrich68]

Sorry I'm terrible at this.  Are you now saying to split the 1098-T ?  put the box 1 $1695 on my return but put the box 5 $2740 on my son's ?   (or put all the information on both ?  I know when I initially tried to do my son's first it said to put the 1098-T on mine since I claimed him as a dependent)

I'm also confused by what the 1098-T box 1 and box 5 mean now.  My understanding is box 5 was the total amount of funds granted $2740 (baseball scholarship of $1443 and Oregon Promise Grant $1297) and his tuition expenses totaled $1695...then the difference between the two was $1045 which we got a check for as Financial Aid Refund.  So at that point we're +$1,045 in funds but from that we bought a computer/books/material for $1393...so we used up all the funds (-$348) on my return.

Appreciate the help Hal_Al,  sorry for the headache....should've taken it to H&R Block this year ! lol

[Hal_Al]

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. You use the 1098_t as an input device.  So, yes, you can, and should  split the 1098-T.   Put the box 1 $1695 on your return (and the $1393 computer/books/material) but put the box 5 $2740 on your son's return. And yes, sometimes the info goes on both returns. 

Note: you are not both "claiming the 1098-T".   You are the only one "claiming" the tuition credit. Your son is only using the 1098-T as a means for entering information. 

Since all your expenses were paid by TAX FREE scholarships and 529 plans, you're not normally allowed to claim a credit (you didn't pay for anything with your AFTER TAX money). But the IRS allows you to reclassify those sources of funds in order to claim the credit.  We're going to reclassify  all of the scholarship and some of the 529 earnings as taxable income so that you can claim to have paid tuition and course materials with  your (and your son's) after tax money.  All legal and even suggested by the IRS in Publication 970. 

My instructions above tell you how to do that and what results to expect. 

[JillS56]

No, you do not split the 1098-T  between you and your son.   Either you claim the 1098-T or you don't claim the 1098-T.   Below you will find my explanation of the two scenarios.

I have read through your previous posts and the responses from @Hal_Al.   You do not have to split anything.   If he is your dependent, then you can claim the education credit on your return.    

One thing that I do not see mentioned above, is that your son cannot claim the 1098-T on his return if he is a dependent on your return.   The only way you can claim the credit is if he is a dependent on your return.  

I am going to give you two scenarios here.   One with you claiming your son and claiming the 1098-T on your return.  

Scenario 1:   The credit is going to be calculated by the amount in  Box 1 ($1,695) of the 1098-T and subtracting Box 5 of the 1098-T ($2,740) which leaves a credit of $1,035. This would cause a taxable event unless you applied the cost of books and other eligible educational expenses ($1,393) to the remaining credit which would leave the balance of $1,035 would be considered income except you applied the to that amount of $348 the amount eligible for the education credit.   I am not sure how much of a credit you would receive from this amount.  

Your son then has to deal with the 1099-Q.   The only thing he can claim against the 1099-Q is his room and board which is $6,964.   Where there any other expenses he paid other than rent such as utilities?  If so, add those to the amount of room and board.  Taking the amount on the 1099-Q ($8,304) less the amount of room and board ($6,962) leaves $1,342.   Your son would have to report the $1,342 as income.  

Scenario 2:   Since your education credit is very limited, let your son claim himself, and you do not claim him a dependent.    Your son would have his $4,125 of income plus the taxable amount of $1,342 from the 1099-Q, but would also get the credit for the $348 from the 1098-T which would leave him with a taxable amount from the 1099-Q of $992 instead of $1,342.    His total income would be $$5,117 and with his standard deduction, he would not pay any taxes. If you continue to claim him, then he will receive a standard deduction for the earned income of $4,125 and pay tax on the $992.