Cannot claim ed tax break...not eligible ed credit. I am parent of dependent child, have 1098-T form. Last year ok by Turbo. Status quo '22. Turbo glitch? How to resolve?

[tenstar]

Turbo reasons why I may not qualify do not apply. Child is my dependent. Noone can claim me as dependent. My 529 plan funds used to pay all my child's college expenses.

[KrisD15]

Are you asking about an Education Credit or the exception to tax for the distribution? 

If you used a 529 plan to pay all the education expenses, there would be no expenses left to apply towards an education credit and the distribution would be tax-free.

When there is a dependent student, education expenses, and an education savings account, there are options to how that can be allocated and an education credit may be possible, but it's complicated. 

Who made the distributions is a factor. (The student should always make the distribution to pay for their expenses if they are the beneficiary of the account) 

IRS PUB 970 is pretty clear about explaining the different options and gives examples. 

We might be of further assistance here, but we would need more information to give any advice such as the numbers on the 1098-T, and 1099-Q as well as who was issued the 1099-Q and additional expenses the 1099-Q might be applied to, such as room and board. 

[Hal_Al]

You really haven't ask a clear question.  Even though, there's a simple answer. Don't enter the 1098-T or the 1099-Q. 

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.  If neither applies to you, you don't need to enter the 1098-T.

The 1099-Q is also only an informational document. 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.  

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." 

But taxes aren't simple. 

There are three things you can do with your 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

You are allowed to allocate expenses for the best tax benefit. TurboTax allocates QEE, in that order, until you tell it otherwise. So, the TT interview is complicated to accommodate that.

[tenstar]

Dear Kris,

I am extremely grateful for your reply. Mea culpa for poorly crafting my original inquiry. Let me start over:

I am a Dad, with a 529 plan.

I am not the dependent of anyone else. 

My dependent child is the 529 beneficiary and attending college (one in 2021-2, two in 2022-23). 

For 2021 tax year, we received both a 1098-T and 1099-Q, as some 529 funds were paid directly to my child, and other 529 funds were paid directly to the college. 

My child reported 1099-Q info on her turbo 1040; I reported 1098-T info on mine, and also took American Opportunity Credit. Turbo accepted all this without further ado.

This tax year, we received one 1099-Q (529 funds paid directly to child) and two 1098-T, one from each college she is attending more than halftime. 

Again, child reported 1099-Q on her Turbo return without a problem; but I encountered rejection entering 1098-T info on mine, as follows:

1. Deductions and Credits section: Expenses and Scholarships (Form 1098-T) was there with college name listed, and Edit button, which I pressed.

2. Your Education Expense Summary (listing my dependent child) appeared. All info was correct. I continued.

3. Next page opened with message: "You can't claim and education tax break. Based on what you've entered so far you are not eligible for an education credit. Here is why you may not qualify: 
*Somebody else can claim you as a dependent on their return. (This does not apply to me)

*There were no net qualified education expenses" (I don't know how to interpret this, but assumed there might be a glitch due to some faulty input on my part.).

I was kindly informed by another Turbo community member that one does not have to enter either 1099-Q or 1098-T info on a return, yet Turbo acknowledged input from last year, so I assumed I could do the same this year (adding additional college 1098-T), but now I'm unsure what to do and whether, if I proceed, I will be offered the American Opportunity Credit further along in my return prep. 

I have PUB 970 open...what a maze. Hopefully, you will be able to guide me with your expertise. 
Many thanks.

Neil

[Hal_Al]

It's complicated and entering info, in TurboTax can be tricky, particularly when both the student and the parent are doing so. 

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, parent 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?

[tenstar]

Dear Hal,

Thank you as well for your replies. You may have read my reply to Kris a few moments ago. My answers to your questions appear after each question. I have purposely not entered actual $ amounts that appear in boxes. Please explain if they are required for you to make a determination. 

• Are you the student or parent. (PARENT)
• Is the student the parent's dependent. (YES)
• Box 1 of the 1098-T (AMOUNT ENTERED)
• box 5 of the 1098-T 9 (AMOUNT ENTRERED)
• Any other scholarships not shown in box 5 (NO)
• Does box 5 include any of the 529/ESA plan payments (it should not) (NO)
• Is any of the Scholarship restricted, i.e., it must be used for tuition (NO)
• Box 1 of the 1099-Q (AMOUNT ENTRERED)
• Box 2 of the 1099-Q (AMOUNT ENTRERED)
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)? (STUDENT)
• Room & board paid. If student lives off campus, what is school's R&B charge. (1099-Q FUNDS FROM 529 USED FOR THOSE SPECIFIC EXPENSES. STUDENT LIVED OFF CAMPUS BUT R&B COSTS WERE EQUAL TO OR LESS THAN ON CAMPUS DORM ROOM AND MEAL PLAN APPROVED BY 529 RULES.)
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers (1099-Q FUNDS WERE USED FOR THESE AND APPROVED BY 529 RULES)
  • How much taxable income does the student have, from what sources (WORK-STUDY INCOME REPORTED ON STUDENT'S W-2)
• Are you trying to claim the tuition credit (are you eligible)? (AS PARENT, I AM TRYING TO CLAIM AMERICAN OPP CREDIT, AS I DID LAST YEAR)
• Is the student an undergrad or grad student? (UNDERGRAD - MORE THAN HALF-TIME)

[Hal_Al]

Yes, the numbers are required to determine how they should be allocated.

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

1. Allocate them 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

What I frequently see here are simple solutions,  It's the complexity of inputting info to get TT to do the best. It frequently takes a workaround, using the numbers. 

Here's an example. https://ttlc.intuit.com/community/college-education/discussion/is-any-of-my-son-s-college-scholarshi...

[AA1574]

Hal - 

Not to hijack the question but I am running in the same problem where TT states I am not eligible for education credits. My situation is simple.

I am claiming my child as dependent.

4th year of college.

Child is NOT filing a separate 1040 as he had no income.

No scholarship,

No 529,

No interest payment

1098-T for my dependent child has $18038 in box 1.

All other boxes are empty.

As I go through the questionnaire and enter the information, it tells me I can't claim the education tax break.

My income is below $100K and filing status is Joint return (deceased spouse).

Not sure why.

[Hal_Al]

@AA1574  You've most likely answered something wrong in the interview.  Try deleting and starting over. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click delete next to the student's name.  You'll then get the "Your Education Expenses Summary" screen again.  Click the "Add a student" button.

If you are eligible, you have answered  something wrong, in the interview. But, a lot of people are just not eligible.

See Also see this TT FAQ https://ttlc.intuit.com/questions/3383321-why-didn-t-i-get-a-credit-or-deduction-for-education-expen...

Other references:

 https://www.irs.gov/Individuals/AOTC

https://www.irs.gov/newsroom/american-opportunity-tax-credit-questions-and-answers

https://www.irs.gov/credits-deductions/individuals/education-credits-questions-and-answers

 https://www.irs.gov/individuals/llc

https://ttlc.intuit.com/community/college-education/discussion/i-have-a-1098-t-form-that-i-received-...

[tenstar]

Again, my sincere thanks to the entire Community for your expert guidance. Problems have been satisfactorily resolved. 

Best wishes to all.

Neil