Q. Does dependent son need to file?
A. No. Income is below the filing threshold.*
Q. If so, does he need to report the 1099-Q at all since it's less than his tuition payments?
A. No. For just that reason: his adjusted qualified educational expenses (QEE) are less than the distribution. Room and board, books and a computer are also qualified expenses for a 529 plan distribution.
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Q. Do we need to report any of this on our return?
A. Not the 1099-Q, since the distribution, apparently, went to him or directly to the school.
Unless your income is too high (>$180K Married filing jointly), you are eligible for a tuition credit of up to $2500. So, you do want to enter the 1098-T, on your tax return.
* Even though the capital gains were small, depending on the amount shown on the 1099-B for the gross amount of the investment sales, you may want to consider filing anyway to head off an IRS inquiry.
If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2024 if he had any of the following:
- 1. Total income (wages, salaries, taxable scholarship etc.) of more than $14,600 ($13,850 for2023).
- Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1300 ($1250 for 2023).
- Unearned income over $450 and gross income of more than $1300.
- Household employee income (e.g. baby sitting, lawn mowing) over $2600 ($14,600 if under age 18)
- Other self employment income over $432, including money on a form 1099-NEC
Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.
In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.
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The 1099-Q is 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. But, it will prepare a 1099-Q worksheet for your records (you don’t need it). 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!
References:
- 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."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
- ("IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form."
