Education Expenses

[LaughTrack]

My daughter is in Teach for America and taking graduate education courses through a local university.  Her tuition on form 1098 - T was paid 3 ways, one by a scholarship from the institutions, one by a payment on a 1099-Misc from Teach for America, and one by a 529 (for her benefit) withdrawal from my account and paid to the institution on her behalf.   I don't think I am reporting this correctly, as she is receiving a significant credit even though she didn't pay directly for any of this.   Initially, TurboTax thought her payment from Teach for America was "business income," but I don't think that is correct, either, so I deleted it but reported it under Personal Income.   I reported the 529 payment on my return and identified her as the receipient of a qualified distribution

[Hal_Al]

What does "payment on a 1099-Misc from Teach for America" mean? Is it your understanding that this is a scholarship or something else? What did the student do or promise to do to get this money?

If it's taxable ($ on a 1099-Misc usually are), then the student can claim a credit based on tuition paid with that money

[LaughTrack]

Thanks.

Teach for America requires (and subsidizes to some extent) taking a graduate program in Education.  

I reported the 1099-Misc as "personal income"  for her rather than "business income" in Turbo Tax.   

As I have reported it so far, she is getting a credit in excess of her actual outlay (which was zero) as she benefitted from the 1099-MIsc payment from Teach for America, a scholarship from the campus, and a 529 payment made for her tuition from my 529 account for her benefit.  TurboTax asked if she received any 1099-Q's.  She did not, so I said "no", but I did for that withdrawal (and I reported it on my taxes.)

She is not a dependent.

[Carl]

What box on the 1099-MISC is the income reported in? Who's SSN is in the Recipient's SSN box? Yours or hers?

[LaughTrack]

Thanks.

Box 3.   And the SS # is my daughter's.

[Carl]

I don't know if you can enter it on your return with her SSN since she is being claimed as a dependent on your tax return. I'm not sure, but I do believe that your daughter would need to enter it on her own return if you can't enter it on your return with her SSN. Upon initial entry it would be taxable income. Then in the education section she would indicate it was used to pay for qualified education expenses (not room and board) so it's taxability would be offset and cancelled out. Basically, it's treated as a scholarship is, not the same as a 529 distribution.

[LaughTrack]

Thanks.  Maybe I mistyped, but she is NOT a dependent.   I do have money in her 529 which was used to pay part of her tuition on the 1098-T, but the 1099-Q came to me, not her, and I reported it on MY taxeds as used to pay qualified educational expenses for her (as a person who is NOT a dependent.)

TurboTax is including the 1099-Misc in her income, but it still seems to me she is getting a benefit as if she paid for balance of the bill which was paid for from the 529 withdrawal.

[Carl]

Maybe I mistyped, but she is NOT a dependent.

If she is not being claimed as a dependent on your tax return, then you can't claim any education expenses for her. She has to claim everything on her tax return.

Take note not only on what the dependent requirements are, but also on what is not a requirement.

If the student:

 - Was under the age of 24 on Dec 31 of the tax year and;

 - Was enrolled as a full time student for any one semester that started in the tax year and;

 - Was enrolled in a program of study that will lead to a degree or credentialed certification and;

 - Was enrolled in an accredited institution and;

 - did not provide more than 50% of their own support (scholarships, grants, 529 distributions, money from parents, etc. do not count for the student providing their own support) then;

The parents qualify to claim the student as a dependent on the parent's tax return.

Several things to note here. The key work is "qualify". There is no requirement for the parents' to claim that student as a dependent. But this matters if the student is required to file their own tax return. In such a case, the student is required to select the option for "I can be claimed on someone else's tax return.". It does not matter if the parents claim the student as a dependent or not. If the parents *qualify* to claim the student and the student is required to file a tax return. Then the student must select the option for "I can be claimed on someone else's tax return."  

The parent's have a choice. The student does not.

Note also what is not a requirement for the student to qualify as your dependent if they were under the age of 24 on Dec 31 of the tax year. Most notably, there is no income threshold for the student. The student could earn a million dollars and still qualify as your dependent.

Also take note that time spent away from home for the primary purpose of attending school, is considered time having lived with you. Therefore, as far as the IRS is concerned the student lived with you "the whole year", provided of course, their primary reason for not living at home is for the purpose of attending school.

[LaughTrack]

I think we are talking past each other.   On my return, I entered the 1099-Q, and specified she was NOT a dependent.   I received neither a tax benefit nor a tax cost since this was used to pay for a qualified expense.   She pays for the vast majority of her own support.   She is not a dependent, and neither she nor I claim that she is on either tax return.  I do not believe that 529 funds can only be used to support a dependent.  I think they can be used to support anyone's qualified educational expenses.

On her return, your tax summary says she claimed a benefit INCLUSIVE of this (unreported) 529 payment (and the amount in the 1099-Misc.)   I don't think this is correct as I don't believe she should receive a benefit inclusive of the portion of it she did NOT pay for.    Turbo Tax should have asked me if she paid for all of her education expenses, but if it did, I missed it.  She paid for part (on the 1099-Q),  but the rest was paid for by scholarship from the institution and the 529 withdrawal from me.

[Carl]

I think we are talking past each other.

Yep. Sorry about that and thanks for clarifying things.

I do not believe that 529 funds can only be used to support a dependent. I think they can be used to support anyone's qualified educational expenses.

Just like scholarships and grants, 529 funds can be used for the qualified education expenses. Additionally, 529 funds can also be used for room and board provided the room and board is in support of the education.

Now there's somewhere in the scholarships/grants section where you're asked if any of the scholarship money entered was reported on a 1099-MISC. Did you miss that maybe?

[LaughTrack]

Thanks.  We are now on the same page.

But I think my daughter's tax form is still incorrect.

I just tried entering the 1099-Q.   I could do that and designated that the recepient was me but the beneficiary was my daughter.   (In fact, I paid the remaining tuition charge directly then reimbursed myself using the 529.   I have done this before in other circumstances with things like rent or books.)   Anyway, TurboTax is now still showing a CLAIM from my daughter which includes the 529 withdrawal so it is too high, but also saying earnings on the 529 usage are taxable to her, which makes no sense to me. 

[Carl]

This may be another "quirk" having to do with room and Board expenses as identified/clarified below.

"When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds."

The above "may" have something to do with it. I can only suggest that you work through the education section again, and ensure you do so the way it's intended. I'm sure you already know that excess 1099-Q funds not used for education or the supporting room and board, is taxable income to the student.

[LaughTrack]

Well, facts are the $ from the 529 was used to pay for tuition.   She was taking classes remotely and had no other expenses.   In my last go through, I eliminated the 1099-Q and then called the money drawn from it a "scholarship."   That reduced her credit pretty dramatically (and correctly, in my view.)   And I can't easily find the page for 'other expenses' though I will go back and try again.

[LaughTrack]

And now I re-entered the 1099-Q just to see what would happen.   The sum total is reported as "Miscellaneous Income" but doesn't seem to raise her income or affect her taxes (even though the program suggests it is taxable.)   The "other expenses" page does not allow me to change her tuition charges, and again, this 529 payment made to refund myself for the portion of tuition I paid directly.

[LaughTrack]

In sum, I re-entered the 1099-Q which was used to pay for part of her tuition.   It shows up on her summary as "miscellaneous income" but doesn't appear on her 1040 or anywhere else I can find in Forms.  I then put amount specified in the 1099-Q in her education expenses as a "scholarship" since she didn't pay this money but it came from her 529 (which is owned by me.)   The 529 was reported on my tax return as qualified educational payments for her who, to reiterate, is not a dependent.

This seems to get the right result as best I can tell, but I'm still not sure I haven't done something wrong.   Even though I input the 529 on her return, it doesn't seem to appear on any of the forms.