Can someone answer this 1099Q / 1098T question...it seems to be a common issue..that confuses all...PLESE HELP!!!

[Carl]

Good Lord! Reading through this thread it seems a multitude of people have gone out of their way to make what is obviously simple (to me) as complicated as possible. I refer to this proccess as "complixified simplification".   The opposite would be "simplified complexity". 🙂

From what I gather in this thread, the following things are true

 - The student qualifies to be claimed as a dependent on the parent's tax return.

 - The student is "in fact" being claimed as a dependent on the parent's tax return.

 - The total qualified education expenses paid in 2019, exceeds the total of all scholarships, grants, 529 distributions received in 2019.

If all the above is true, then the parents claim "ALL" on the parent's tax return. Period. End of story. One additional note here concerning 529 funds.

Scholarships and grants can be used for the qualified education expenses of tuition, books, and lab fees. That's it. There are no exceptions.

529 funds can be used for the qualified education expenses of tution, books, lab fees *and* room and board.

Out Of Pocket expenses can be claimed for the qualified education expenses of tuition, books, and lab fees. That's it with no exceptions. Out of pocket expenses can *not* be claimed/deducted for room and board.

So if the three things I mentioned above are true, then the parent should claim "everything" concerning education on the parents tax return, and be done with it. That would include the 1099-Q.

What if I don't claim the 1099-Q?

If you used the 529 funds to pay *qualified* education expenses and don't report that 1099-Q, then you are telling the IRS that you paid the amount on the 1099-Q "out of pocket". That would not be true and would be fraudulent.

The fact that the student's SSN is on the 1099-Q doesn't matter here, because the student's SSN is already on your tax return as your dependent. So this is not an issue.

[confusedrf]

RE:

what TT states is that the loan PROCEEDS can be used to pay for the qualified expenses.  

it never says making the payments themselves is a qualified expense.  

So I am good right. To be honest I do not see the difference. She took a loan that went to **pay for tuition**. Where else would they go? She is a dependent.  It counts towards the $4k....no?

[NCperson]

@Carl - sorry I beg to differ on the 1099Q form.... there is a social security number on that form and the IRS will certainly match that document against the return of the person with that social security number. 

if the money was sent from the 529 administrator to the school, the students SS# will be used.  Presumably it was all for qualified higher educational expenses under the 529 program to pay an outstanding statement.  why else would the money be directed to the school if there wasn't a bill outstanding? There would be no need to report anything on the 1099Q (the double dipping question left to the side as that creates complication with my statement)

if the money was sent from the 529 administrator to the parent, the parents SS# is used.  There is no evidence that the money went to the school, which puts parents through these hoops to document that in fact the distributions on the 529 are offset by qualified higher educational expenses. (let alone the hoops created by the 'no double dipping rule' of the AOTC). 

[jlar]

@NCperson - thanks again for posting valid references to tax code they help a lot! I agree the 'transfer' looks valid. TT does not lead us through this 'transfer' but we can achieve it using an 'override'. I wonder if using an 'override' also generates a 'flag' for the IRS? Now I'm thinking of upside/downside risks of using the 'override option' vs the 'not filing 1099Q option'. I'm leaning towards entering those override options and letting it rip! But the whole 'not enter 1099Q' is looking better and better cause when you ask you just send them all the information you have and let them make a determination. That is, if entering it is truly an 'at your descretion' as Hal AI and others have stated. Still note sure on that, myself.

@confusedrf 

To me it looks like you are good to claim the AOTC and not owe any tax on your students form. You paid 18k total using a combination of 7k loan/cash and 11k 529.

18k - 4k to qualify for the AOTC leaves 14k paid...that is more than enough to cover the 11k 529 distribution.

I'd say you get the AOTC and pay no other taxes.

I think the reason you and I have a difference here is our kids income. My daughter exceed the 12,200 standard deduction so TT is saying the 529 earnings are taxable. They sit 'on top' of the earning from her job and are visible.

I think you said before your daughters job income is below that threshold. So even if TT is taking that whole 11k 529 (or, rather, the 'earnings' portion of that 11k distribution) and adding it to  her income, if she is falling under the 12,200 standard deduction there is no tax (ie its not 'visible' to income tax). Now, if she starts working more...and next year you also have an 11k 529 withdrawal, then you'll be in my boat wondering why you can't shelter that money with your big-ass tuition payment!

Thinking more about the loan thing....once you borrow money, that is free for you to spend as you see fit. It is 'your money' at that point. If you spent 'your money' (or 'her money' if the load was hers) on tuition it's 'qualified expense'.  I got confused earlier when you talked about 'loan payments'. To me the 'payments' are not relevant....you get to pay that loan back over whatever term you agreed to...perhaps long after college is complete. That's just my thinking on the matter. I think you are good. I just wouldn't think about actual 'loan payments' made, but rather expenses incurred and paid using your money (proceeds from a loan or cash)....in this case you used it for direct tuition payment to the college so its qualified expense.

[NCperson]

here is the nuance.... she look out a loan and then  is required to make make payments to pay back the loan 

what the IRS is saying is that 

1) even though you borrowed the money to pay for the qualified expenses, those qualified expenses are still eligible under AOTC

2) but the payments to repay the loan are NOT eligible expenses under AOTC.

[NCperson]

@jlar - I've used TT for 25 years; my preference is always NOT to override anything - I never know what unintended consequences of my actions may occur before TT completes it's calculations, so i always avoid it.

Also, if you override something and there are nasty unknown surprises that you didn't realize, the guarantee is not going to cover you. 

[confusedrf]

RE:

From what I gather in this thread, the following things are true

 - The student qualifies to be claimed as a dependent on the parent's tax return.

 - The student is "in fact" being claimed as a dependent on the parent's tax return.

 - The total qualified education expenses paid in 2019, exceeds the total of all scholarships, grants, 529 distributions received in 2019.

If all the above is true, then the parents claim "ALL" on the parent's tax return. Period. End of story. One additional note here concerning 529 funds.

Well...this is sort of where we started.  Yes based on thisand if her loans that paid tuition count towards the $4k then yes I think I am good.

At one point I thought this was the easy part!

The issue that came out of this was what if the net of the 1098T and 1099Q were zero, potentially meaning after scholarships the balanceof payments were made entirely from the 529 plan.  Based on that...no AOC....unless you perhaps have a lot of books....and if the student lived at home???....ROOM AND BOARD!!!....that's where this thing started to head anyway...can a parent write off R&B...and I do not really think the R & B has been definitively answered by someone 100% in the know....Someone call the IRS!!!  LOL

[NCperson]

@confusedrf - but you do want to think about the AOTC before thinking about the 1099Q.  The credits under AOTC are more valuable than consuming the $4000 to cover off some of the earnings, which is technically a deduction. 

[jlar]

@Carl  - Welcome to the party!

Like NC said, we both had the 529's go to the school (at least I know mine did). So the 1099-Q is my daughters. And Turbo Tax is charging her Income Tax on the earned portion of the 1099Q because I entered the 1098-T on my return....and there is a portion that is 'stranded there'....ie the excessive of the 1098 qualifying tuition over the $4000 to get the AOTC.  There are a LOT of little hints in the language and on the forms about 'double dipping' and 'exceptions' that give rise to these notions of 'transferring' those stranded $ back to the students form to cover the earnings on the 1099.

Would you care to answer my 'one simple question': 

**Can i enter a 1099Q line 2c "Adjusted Qualified Higher Education Expenses applied" amount on my daughters federal return to 'transfer' the amount of 1098-T qualified expenses entered (on my/parent return) and 'stranded' (i.e. in excess of the $4000 AOTC qualification)...plus other qualified costs, such as books, Room and Board, etc.

[confusedrf]

RE:

here is the nuance.... she look out a loan and then  is required to make make payments to pay back the loan 

what the IRS is saying is that 

1) even though you borrowed the money to pay for the qualified expenses, those qualified expenses are still eligible under AOTC

2) but the payments to repay the loan are NOT eligible expenses under AOTC.

She wont even start paying the loan back until she graduates. The act of borrowing the $$$ from Uncle Sam who remitted payment right to the college...that counts towards the $4k....SOMEONE SAY YES!!!!!   lol lol 

[NCperson]

@confusedrf - so you can get some sleep tonight I will agree with you, but technically it's about the expenses that qualify for AOTC and not where the cash comes to pay those expenses  that determines what is an eligible expense.  

if your daughter was making loan payments (and it appears she is not so it's a moot point), those loan payments are not eligible expenses for AOTC. 

[jlar]

@NCperson  "my preference is always NOT to override anything" - thanks for that...that's the kind of input I'm looking for. 

However, with regard to my dilemma, if I don't 'override' there is NO WAY to pull of that little 'transfer' with the 1098-T dollars.

The impacts are not so bad this year, but next year will be double as I increase my 529 draws.

I understand about the 'guarantee'. I was running into that as I started tweaking all the forms trying to figure out how to nullify that dang 10% penalty. However, at the heart of the IRS platform are forms. There are root forms, intermediate forms and summary/final forms. If i make a change in a 'root form' it should be good from a calculations perspective (though it still may be questionable). And TT will flag you if you fart it up too bad (as I've done). 

[confusedrf]

I started the party. Some came late. Some missed the horderve's. Some may have had one too many. Some seem to have left! One last time....

My daughter is FT and commutes. She works part time over the summer.  She made $4500.  I filed her tax inputting neither the 1098T nor 1099Q on her return.  She gets a small tax refund.

I put the 1098T and 1099Q on our return. She is our dependent. It says I get AOC.  I believe it says this because Total Payments - Scholarships - 529 payments leave a balance of $7k that exceeds the 4K required to get the $2500 credit.

That $7K consisted of: a $6K  fed unsub loan paid directly to the college which my daughter must repay when she graduates.  I also paid $1K towards tuition last year.

I HOPE I legitimately earned the $2500. I HOPE she was entitled to her meager refund.

As far as what happens 'next year' for us when we take 'no loans' and Total Payments - Scholarships - 529 payments leave a balance of $0....can I claim R&B...yes/no...that I am still not clear on but I may try different tax software next year.

[jlar]

@confusedrf  "She wont even start paying the loan back until she graduates. The act of borrowing the $$$ from Uncle Sam who remitted payment right to the college...that counts towards the $4k....SOMEONE SAY YES!!!!!   lol lol "

YES!

[Carl]

@jlar one of my favorite sayings, that as far as I know was coined by my father.

 "He who claims to totally understand the situation and all aspects of it, is obviously not paying attention."

Like NC said, we both had the 529's go to the school

I'm gonna stop to there first, with this information.

If the 529 distribution paid directly to the school is already included in box 5 of the 1098-T, then you don't enter the 1099-Q at all, anywhere, on any tax return, regardless of who the named beneficiary is on the 1099-Q.

Is this true in your case?