Dependent or non-dependent student

[mc_cool_e]

Looking for some advice on how I should enter education related forms etc.

Here’s my situation:

I’m married filing joint with my wife.

I have one child a sophomore in an out of state college

I am the owner of a 529 plan and my child is the beneficiary.

My child had a summer job and has a W-2 for her earnings but the earnings do not account for 50% of her expenses.

For 2018 my child was my dependent and I claimed all the education credits and entered the 1098-T and 1099-Q on my return. 

The 1099-Q is issued to me as I take the distributions and pay the college.

Going forward we are trying to get my child in state tuition so she has been going through the steps required by her college to establish residency in her college’s state. One of the requirements is that she no longer be claimed as a dependent on my tax return.

So my questions are if for 2019 I no longer claim her as a dependent :

1) am I able to not claim her as a dependent?

2) on her tax return should she still check the “I may be claimed as a dependent on some one else’s return” option, even though we won’t claim her?

3) on whose tax return should the education expenses,  1098-T and 1099-Q be entered?

4) On whose return should the 1099-Q be entered? Mine because its issued to me, or her’s as a non-dependent beneficiary?

Thanks in advance for any advice you guys can provide.

[Bsch4477]

1. You can choose not to claim her. 
2.  Yes, she must say she can be claimed by someone else. 

3.. If you claim her you claim the education credit. If not, she does. 

[hbl3973]

The first place to look is in IRS publication 970 which can be downloaded from https://www.irs.gov/pub/irs-pdf/p970.pdf .  (You can also order a free printed copy through the IRS website https://www.irs.gov/forms-pubs/forms-and-publications-by-us-mail )  To address your questions:

1) You can always not claim a child as a dependent.  I did that a few times with my college age children in order to get a tax benefit.

2) Your child's standard deduction depends upon whether she can be claimed as a dependent, not whether she is claimed.  So, yes, she needs to check that box.

3)  Pub 970 , page 13 has a flowchart to determine if a person is eligible to claim the credit.  It shows that you cannot claim the credit for a child not shown as a dependent on your return, but the child can claim the credit.  This is summarized on page 20.  Page 21 also states that she cannot use the 40% refundable portion of the credit to reduce her taxes below zero.

However, any money that was used by the 529 plan to pay qualified educational expenses excludes those expenses from the educational credit.  The good thing, though, is that 529 plan money can be used to cover room and board and some other nonqualified educational expenses.  Page 16-17 of that publication show examples of legitimate expense shuffling that, for example, may allow scholarships to be treated as taxable income and thereby increase the out-of-pocket payments of qualified expenses such as tuition.

[mc_cool_e]

I forgot to mention in the original post that I take the distributions from the 529 plan and pay the school. So the 1099-Q is issued to me.  If I don’t claim the 529 beneficiary as a dependent can she report the 1099-Q on her return?

[DaveF1006]

According to this Turbo Tax link, she would not be able to claim this on her own tax return because if she files a return:

1. The parents qualify to claim the student as a dependent,
2. Then the student must select an option that indicates she can be claimed on someone else's return
3.  student must select this option even if the parent's qualify to claim the
    student as a dependent, and the parents do not claim them

[NCperson]

the 529 plan outcome has nothing to do with whether she is a dependent or not.  That will go on the return of whomever's social security number is on the form

with respect to AOTC (which comes down to the 1098T) form, as noted by @DaveF1006 , you certainly have the right not to claim your child as a dependent, but you give up the AOTC benefit if you do that.  

if the student is a dependent, then you claim the benefit.  If you chose not to claim the student, then no one can claim the benefit.  If the student can't be claimed by anyone, only under that circumstance are they eligible for the benefit. 

Do be careful of the 'double dipping' when calculating the AOTC credit and the 529 distribution - it can be tricky - plenty of posts here do explain it. 

[RR-fromMaryland]

I have similar circumstance: We, I (parents) file MFJ and daughter in college, with W2 small income so she wants to file separate return. We paid part of her tuition with 529. Most posts I am seeing says to enter 1099-Q on her return, but 1098-T on parent return.  I entered 1099-Q on her return, then turbotax posted large federal tax. It wanted me to enter 1099-T. I want to take the tax credit so I'm not sure how to do that.

[KrisD15]

You should enter all her documents relating to education (1098-T and 1099-Q) into your TurboTax program. Your program will do the math, issue a credit (if applicable)  on your return, and tell you if and how much the student needs to claim as taxable income. 

If your daughter needs to claim any income, do not enter the 1098-T nor the 1098-Q onto her return a second time. 

If she needs to claim scholarship income, enter the amount she needs to claim (only) in the education section as a scholarship (NOT using the 1098-T screen, just the amount as a scholarship).

If she needs to claim any of the distribution, that amount is entered as "Other Income" on her return. 

[NCperson]

@RR-fromMaryland The 1099Q relates to the return of the social security number on the document; that is the rule - there is no option.   The 1099Q will have the parents SS# if the administrator sent the money to the parents.  If the administrator sent the money to the school, the student's social security number will be on the form.

The 1098T goes on the parents tax return, assuming the student CAN BE  a dependent and Box 1 exceeds Box 5.  Otherwise, it goes on the student's return 

if you post the following, I can guide you with the math and approach:

1) 1098T - box 1 and Box 5

2) 1099Q - Box 1 and Box 2 - whose social security number is on the form? 

3) how much are the other expenses that is not in Box 1 / Form 1098 T (think Room and Board, Books, Computer expenses)

4) are you eligible for AOTC? (joint AGI less than $160,000)