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wiessner
Returning Member

Education Expenses

I have a dependent college freshman.  She worked during the summer but only earned about $2000 so I wasn't going to prepare a tax return for her.  However, she received a 1099Q and a 1098T in her SSN.  Do I have to report these on a return under her name or can they be included in my return?  I also read through IRS Pub 970 and figured out the taxable earnings on the 1099Q, about $4500.  That amount combined with her work earnings still don't put her over the $12000 limit to file so do I just not file for her? 

6 Replies
Hal_Al
Level 15

Education Expenses

A dependent's filing requirement is not  the standard $12,400, it varies by the type of income.  It is $1100 or her earned income + $350.   Since she has earned income of $2000, her filing requirement is $2350. 

 

If she has taxable earnings, from the 1099-Q, of $4500, that is classified as unearned income.  She will have to file  a tax return.

 

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 $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)

 

**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.

wiessner
Returning Member

Education Expenses

Thanks for the good info.  I went through and entered the 1098T on my return but it says I don't qualify for any education taxes.  Can I just remove all education information from my return and put the 1098T info on my daughter's return?

Hal_Al
Level 15

Education Expenses

Q. . Can I just remove all education information from my return and put the 1098T info on my daughter's return?

A. Simple answer: yes.

But, provide the following info for more specific help:

  • Are you the student or parent.
  • Is the  student  the parent's dependent.
  • Box 1 of the 1098-T
  • box 5 of the 1098-T
  • Any other scholarships not shown in box 5
  • Does box 5 include any of the 529/ESA plan payments (it should not)
  • Is any of the Scholarship restricted; i.e. it must be used for tuition
  • Box 1 of the 1099-Q
  • Box 2 of the 1098-Q
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
  • Room & board paid. If student lives off campus, what is school's R&B charge
  • If the student live at home, what is the school's meal plan allowance
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
  • How much taxable income does the student have, from what sources

I know you've already provided some of that info, but it's helpful to have it all in one place.

wiessner
Returning Member

Education Expenses

See my answers below in red.

 

  • Are you the student or parent.  I am the parent
  • Is the  student  the parent's dependent.  Yes she is a dependent
  • Box 1 of the 1098-T  32,900
  • box 5 of the 1098-T  18,050
  • Any other scholarships not shown in box 5  No
  • Does box 5 include any of the 529/ESA plan payments (it should not)  No
  • Is any of the Scholarship restricted; i.e. it must be used for tuition  No
  • Box 1 of the 1099-Q  21,521
  • Box 2 of the 1098-Q  8,578
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?  student's name
  • Room & board paid. If student lives off campus, what is school's R&B charge  student lives on campus, R&B is $7,165
  • If the student live at home, what is the school's meal plan allowance  N/A
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers  books $83, computer $1399, parking permit $160 (don't know if this qualifies)
  • How much taxable income does the student have, from what sources $2200 worked during summer
Hal_Al
Level 15

Education Expenses

I assume you don't qualify for the education credit because your income is too high, Based on the above you would otherwise qualify. 

Parking permit doesn't qualify.

 

  $32900  Tuition

+    7165   R&B

+     1482   Books & Computers

=  41547    Total Qualified expenses

-    18050    Paid by tax free scholarship

=  23497     Expenses can be used toward the 1099-Q,  Since that is more than the $21,521 distribution; none of the distribution is taxable and the 1099-Q does not need to be reported, at all.  

 

Do not enter either the 1098-T or 1099-Q on her return. Both are  only an informational documents. The numbers on it are not required to be entered onto either tax return. 

 

Unless she has withholding in box 2  or box 17, of her W-2, that she wants back,  she does not even need to file a tax return.

wiessner
Returning Member

Education Expenses

Thank you for your assistance!

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