Dependent 1098-T and 1099-Q Confusion

[calmit]

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

[Hal_Al]

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. 

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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:

1. he is a full time student under 24 for at least 5 calendar months of the year (graduating in May usually means you meet the 5 month rule)
2. he did not provide more than 1/2 his own support  (scholarships are considered 3rd party support and not support provided by the student). 
3. lived with the parent (including time away at school) for more than half the year

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

[momoftwinz]

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

[Hal_Al]

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.