Educational Expenses

[divgudrao]

I am the owner of 529 plan and my daughter is the beneficiary.  1099-Q was issues on my name (as I am the owner) and full amount withdrawn was paid for my daughter's college Tuition and fees. 1098-T was issued by college on my daughter's name. My daughter got married in 2024 and will be filing Tax returns with her spouse. She has no income in 2024. What is the best way (Who and how) to report 1099-Q on Tax returns. 

1. Can I (parent) show both 1099-Q and 1098-T, without claiming my daughter as dependent? 

OR
2. Can my daughter can show both 1099-Q and 1098-T and claim Educational Tax credit.

Thank you.

[KrisD15]

The 1099-Q was issued to you because you made the withdrawal. 

Going forward, if the distributions are used for education purposes, have the student beneficiary make the withdrawals, or transfer directly to the school. 

That way the 1099-Q is properly issued to the student. 

If your 2024 Form 1099-Q reports a distribution you made, you are responsible for any tax on that distribution. 

If it was used for education expenses, you must co-ordinate with the non-dependent student so that the student does not use the same expenses for their education credit or to offset scholarships. 

Yes, since the student is no longer your dependent, the student would use Form 1098-T for a possible credit. Any times you received the American Opportunity Tax Credit counts towards the four times that credit can be claimed and would limit her availability to that credit by the number of time you took it. 

So, if the distribution was used for room and board, nothing on her 1098-T would need to be changed. 

If her Form 1098-T shows 10,000 in Box 1 and you have a distribution of 2,000 that you are allocating to tuition, she would need to lower Box 1 to 8,000 so that the expenses are not used twice. 

1. You can enter your Form 1099-Q into your TurboTax program. 

It will ask if it was used for education expenses, and if you say "Yes" and "For someone else not listed on this return" there is no further reporting. You are done and the distribution will not be taxed.

No, you do not use Form 1098-T

2. Your non-dependent student daughter will use Form 1098-T to apply for a credit, but she might need to either adjust Box 1 OR not adjust Box 1 BUT ALSO report the distribution you took as "Scholarship or aid not already reported on W-2 or 1099" in her program. 

No, she does not enter Form 1099-Q since it was issued to you.

Again, if the distribution was used for room and board, there would be no need to adjust Form 1098-T.

Pub 970 

[Hal_Al]

Q.  Can I (parent) show both 1099-Q and 1098-T, without claiming my daughter as dependent? 

A. Yes. But you don't need the 1098-T.  See below. 

Q. Can my daughter can show both 1099-Q and 1098-T?

A. No.  You are the recipient of the 1099-Q. She cannot enter it. She can use the 1098-T. 

Q. Can she  claim the educational Tax credit?

A. Yes, Can and should, because you can't (she isn't your dependent).   If you had previously claimed the American Opportunity Credit (AOC) the maximum 4 times, she can claim the lesser Lifetime Learning Credit (LLC). 

She and he husband will only use a max of $4000 of tuition  to claim the maximum AOC, but will need $10,000 to get the max LLC.  You may use the rest of the tuition, books, a computer (if she bought one) and room and board (even if she lived at home) to claim the 1099-Q as tax free. If those available expenses exceed box 1 of your 1099-Q, you do not even need to enter it.

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.

References:

1. 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." 
2. 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”.
3. "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." 

If you do need to enter it, in TurboTax(TT), to get it to calculate the taxable amount, it is actually easier in your situation (the student is not you dependent). 

Enter the 1099-Q. When asked who the student is answer: someone else not listed here.  Enter the student's name when asked.  A few screens later, you'll get one simple screen to enter expenses. Press Done at the 1099-Q summary screen, to get there.  Enter all the expenses. Also enter the amount of tuition used by the student, for the credit,  in the box "Tax-free assistance".  This reports some of the earnings as taxable and claims the scholarship/tuition credit penalty exception. You do not have to deal with the complicated “Educational expenses and Scholarships” (1098-T) section later. TT will prepare form 5329 to claim the penalty exception. 

[Hal_Al]

Q. My daughter, a college student, got married in 2024. Can I still claim her as a dependent and get the tuition credit?

A. Possibly.  See full discussion at: 

https://ttlc.intuit.com/community/taxes/discussion/can-i-claim-my-daughter-who-got-married-on-decemb...