No, she is not required to file a tax return at her income level. However, if she had taxes withheld on her W-2, she can file a tax return to claim a refund.
If all the 529 distribution has been used for education purposes, she is not required to enter form 1099-Q on her tax return.
If she files a tax return, she has to indicate in TurboTax that she can be claimed as a dependent by someone else.
You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return. 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 2020 if he had any of the following:
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.
"She is recipient of $8700 in 529 funds on 1099-Q.
"All 529 used for education expenses."
"I filed with the 1098-T on my own taxes."
She cannot use the same educational expenses, that you use to claim the education credit, to claim that the 529 distribution is not taxable. If there is an overlap, some of the 529 distribution will be taxable on her return. The taxable portion is considered unearned income, so the filing threshold is only $350.
This is usually not a concern, since room & board, as well as books and computers are considered qualifying expense for a 529 plan distribution. In addition, the American Opportunity Credit only uses $4000 of the tuition, in box 1 of the 1098-T.