My dependent son is a full time college student and had no income in 2021. He received both a 1098-T from his school and a 1099-Q from the 529 fund administrator. Box 1 on the 1098-T is greater than box 1 on the 1099-Q.
Questions:
1. Does he need to file a tax return?
2. Can I still claim him as a dependent if he does need to file?
No, your son does not need to file a tax return since he had no income in 2021;
Yes, you still can claim him on your return as a dependent.
You need to enter his Form 1098-T on your return to see if you qualify for any of the educational tax credits (American Opportunity Credit or Lifetime Learning Credit). You don't enter your son's 1099-Q form on your return if the form shows that your son is the recipient (I assume so). Otherwise, you also need to enter the 1099-Q form on your return if you withdrew funds from the 529 plan and then used the money to pay for your son's tuition and other education expenses.
No, your son does not need to file a tax return since he had no income in 2021;
Yes, you still can claim him on your return as a dependent.
You need to enter his Form 1098-T on your return to see if you qualify for any of the educational tax credits (American Opportunity Credit or Lifetime Learning Credit). You don't enter your son's 1099-Q form on your return if the form shows that your son is the recipient (I assume so). Otherwise, you also need to enter the 1099-Q form on your return if you withdrew funds from the 529 plan and then used the money to pay for your son's tuition and other education expenses.
Thanks, I appreciate the quick response!
I did enter the 1098-T on my return and the 1099-Q came in my sons name. The funds from the 529 were paid directly to his school and did not go to me first.
Emphasizing what Fangxial said, you should enter the 1098-T, on your tax return to claim the education credit* on your student-dependent's tuition.
But, doesn't he need to claim the tuition to keep the 1099-Q from being taxable. Not exactly. You will only need to use $4000 of the tuition to claim the the American Opportunity Credit. The rest of the tuition can be applied to the 1099-Q. Room and board* (even if living off campus) and books and computers are also qualified expenses for a 1099-Q. So there are plenty of expenses to offset the 1099-Q. So, he still will not need to file a tax return and the 1099-Q does not have to be reported at all.
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."
*Student must be half time or more
I carefully read this discussion and I think I understand the bottom line. That is, "Nontaxable distributions are not required to be reported...". However, I don't understand the major difference in the Box 1 amounts between the 2 forms, which is about $2,000. (1098T is greater than 1099-q) . All of the funds have been used to pay for tuition and fees. since the 1098-T amount is greater than the 1099-Q amount, can I just ignore the 1099-Q, even if I am the recipient?
Also, I tried several times to enter my 1098-T info and could not, possibly because we have already obtained 4 years of the American Opportunity credits?
Thanks for your help.
Q. I don't understand the major difference in the Box 1 amounts between the 2 forms, which is about $2,000.
A. You told the 529 plan how much to distribute (take out). It's up to you to make the two box 1 numbers match, if that's what you want. But you don't want that because room and board (even living off campus), books and computers are also qualified expenses for a 529 distribution and those amounts are not included in box 1 of the 1098-T.
Q. Can I just ignore the 1099-Q, even if I am the recipient?
A. Yes. "Nontaxable distributions are not required to be reported...".
If you are not eligible for the American Opportunity Credit, you may be eligible for the Lifetime Learning Credit (LLC), which is a straight 20% of tuition (up to $10K), but is non-refundable (can only be used to offset income tax).
_______________________________________________________________________________________
Qualified Tuition Plans (QTP 529 Plans) Distributions
General Discussion
It’s complicated.
For 529 plans, there is an “owner” (usually the parent), 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.
If want to claim the LLC and are having trouble getting TT to cooperate, there are workarounds.
Provide the following info for more specific help:
Thanks so much for your follow-up. I'll try to answer all of your questions in order: amount
1) I am the parent.
2) No scholarships.
3) Box 5 is 0.
4) My same and SS# are on the 1099-Q.
5) The 1099 Q amount Box 1 ($8693 ) is much less than the 1098-T amount $10, 318, which is counterintuitive to me.
6) Student taxable income is 0.
7) Would like to claim the LLC.
😎 the student was an undergrad for 6 years and graduated Dec.2021. I hope this helps.
Thank you.
Still missing:
Thanks for follow-up. Box 2 of 1098 T is 0. The student lived at home. Other qualified expenses for books etc. were $165. Student was full time and graduated in December, 2021even though he completed his coursework in August 2021.
Thanks again.
Bob
Still missing:
I do not have a 1098 Q form, and could not find any reference to it. However, per your request, the cost of a medium price meal plan is $750/semester.
Box 2 of 1099-Q is earnings and that is $463. Thanks.
@Bob-K3 The maximum tax on $463 of earnings, on the 1099-Q, is about $70 for someone eligible for the LLC. Yours will be even less. The LLC is worth as much $2000, for someone with $10,000 (or more) in box 1 of the 1098-T.
You want to claim the LLC even if you have to pay a little tax (less than $70) on the 529 distribution. So, you won't be able to use a workaround. You do want to enter the 1099-Q. Do not ignore it.
If you been having trouble getting it to work, Delete the 1099-Q and the 1098-T and start over. Enter the 1099-Q first. Later enter the 1098-T and your books and board amount. In the education interview, you should reach a screen titled "Choosing a larger education Credit". Verify that TT has entered $10,000 (the amount needed to get the maximum LLC) in the box on that page (you can change it, if needed).
The result should be:
-You get the maximum LLC. It may be less than $2000 if your tax liability is reduced to 0.
-About $350-$450 (depending on how much "board" you enter*) of 1099-Q income will go on line 8z of Schedule 1, as taxable income
-Form 5329 will be generated to claim the penalty exception on the 529 distribution (claiming a tuition credit is a penalty exception).
*For a 529 distribution, for off campus "board", you may use your actual food costs or the school's allowance for cost of attendance (essentially the meal plan cost), whichever is less.
Thank you, again. The results turned out exactly as you suggested.
Sorry to jump in, but this is the closest to my case thread, with a slight modification and I am concerned about an alternative situation which I may not have considered, when filing my own taxes (parent having paid into the 529 program):
- my son finished school mid 2021 (June) and started his first job in Sept (! critical diff to the original case), thus got his W2 for the three months of 2021
- his SS is on the 1099-Q from the 529 program
- his SS is on the 1099-T from the school, for this last semester
- I initiated a tax return for 2021, and claimed his as dependent, assuming I could get some credit from the payments I made into the 529 program, from where the distribution came (unfortunately I did not get any credit, per TurboTax, I assume because my spouse and I, filing jointly, may have surpassed the threshold for such?!?)
Reading this entire thread it is now apparent to me that he will have to claim himself as dependent, and I will have to file an amendement for my filed taxes, and remove him. Questions:
1. Is the above assumption correct?
2. If the above is true, will he have to provide the 1099 info on his return, even though he had no participation in the sum being provided?
2. Is he expected to pay taxes on any of the amount provided into his school?!? This is actually the most critical part
Q. 1. Is the above assumption correct (he will have to claim himself as dependent, and I will have to file an amendment )?
A.1. Most likely, but it is possible that he is still your dependent. See below. The 529 money is considered parental support because you are the plan owner.
Q. 2. If the above is true, will he have to provide the 1099 info on his return, even though he had no participation in the sum being provided?
A. 2. He (if anybody) has to report the 1099-Q, regardless of dependent status, because he is the "recipient" (his SS# on the form). But see Q.3.
Q. 3. Is he expected to pay taxes on any of the amount provided into his school?
A. 3. No. At most, a portion of the amount in box 2 (not box 1) may be taxable. But, most likely none is taxable. He can just not report the 1099-Q, at all, if the 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. For details, see long discussion, above.
______________________________________________________________________________________
Graduation year
If he/she was a student (under 24) for at least 5 months and lived with you for more than half the year, and did not provide more than 1/2 his own support for the whole year, you can still claim him. Be sure he knows you're claiming him, so he doesn't claim himself. He can only be claimed once. But, he can "file taxes" without claiming his own exemption.
The real question is who should be claiming him in this "transition" year to adulthood. You two have to agree on who is going to claim his exemption. Each should do their taxes both ways and see which way the family comes out best. Even then, you have to meet the rules. The rule is that a child of a taxpayer can still be a “Qualifying Child” dependent, regardless of his income, if:
So, it usually hinges on "Did he provide more than 1/2 his own support in 2021.
The support value of the home you provided is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants. IRS Publication 501 on page 20 has a worksheet that can be used to help with the support calculation. See: http://www.irs.gov/pub/irs-pdf/p501.pdf pg 15
I have a different situation with 1098 and 1099
My son is a 24 yr old med student. The 1099Q is in my husbands name and the 1098T is in my son's. Spring semester of 21, he received a Post 911 GI bill scholarship for tuition and then took out Federal loans for Fall semester while he waited to see if he got an Army HPSP scholarship. We paid all of his room and board expenses for the year. He did get the HPSP scholarship in Oct 21 which back paid his Fall tuition (Fed loans returned by school) and actually paid Spring 22 tuition early. So his 1098T shows more scholarship $ than tuition. When I did our taxes, due to his age and the taxable HPSP stipend and bonus income he received he is NOT considered a dependent.
Q1.Since the 1099Q came in my husbands name I'm pretty sure I'm supposed to enter this on our taxes and the 1098T on his taxes...is that correct?
Q2. His Rent/utilities/books/groceries/food (12K) for the year are definitely more than the 529money we took out (8K) so that shouldn't be an issue so do I even need to enter the 1099 on our taxes?
Q3. If I do enter the 1099, under NON-DEPENDENT STUDENT EXPENSES, adjustments,tax free assistance...do I enter all of VA,military scholarship money he received to cover his 45k tuition or just leave the adjustment section blank?
Q4. Since the Army sent the school his Spring 22 tuition in December, before the school actually posted their tuition...1098 box 5 is greater than box 1. Do I just select YES for box 5 having scholarship $ for expenses in a different year...it's not like he actually received any on the $ personally, it sat in the school account as excess until they charged tuition 2 weeks later.
This education stuff is making me crazy! Thank goodness it's the last year! He's on his own now.lol
Q1.Since the 1099Q came in my husbands name I'm pretty sure I'm supposed to enter this on our taxes and the 1098T on his taxes...is that correct?
A1. Yes, if it needed to be entered. It doesn't, See Q2.
Q2. His Rent/utilities/books/groceries/food (12K) for the year are definitely more than the 529money we took out (8K) so that shouldn't be an issue so do I even need to enter the 1099-Q on our taxes?
A2. No. Since the 1099-Q is fully covered by expenses, it does need to be entered at (see above).
Q3. Not relevant.
Q4. Since the Army sent the school his Spring 22 tuition in December, before the school actually posted their tuition...1098 box 5 is greater than box 1. Do I just select YES to "amounts not awarded for 2021 expenses"..
A4. Yes. That allows him to make that adjustment on his return. You don't enter any of that on your return.