My child's College did not send a 1098T and they say that they won't because of the scholarship money. I did the math and Tuition/Fees exceeds the amount of scholarship for the year, but I don't care about arguing that point. I get to the end of the Education deduction Q&A and it says that my child needs to file taxes because it counts as income since scholarship money exceeds education expenses. But that is not true. Since I did not get a 1098T, I can't enter in Tuition/Fees to demonstrate that scholarship money does NOT exceed educational expenses. How do I enter this properly, or do I just put the numbers in the 1098T section as if I had a 1098T? Please help.
You've made a mistake in entering data or you don't understand the expected result.
What are your numbers?
What is your tuition and fees amount?
What is your books and computer cost?
What is the amount of the scholarship?
Is the scholarship restricted to being used for tuition?
Are you trying to claim the American Opportunity credit, on your return? If so, are you trying to claim the maximum $2500 or only amount allowed by the expenses exceeding the scholarship? You can claim the max, by having the student declare some of the scholarship as taxable.
Using some ballpark numbers for privacy and demonstration purposes, Tuition/Fees $13k; Scholarships $11K; Room/Board $3k; and Books/supplies/etc $2.5K. Scholarships are general (Department award, Honors College, Provost Award). I am certain that I do not qualify for a deduction/credit based on the instructions in 8863, so I am trying to confirm that my child does not need to file taxes.
When I don't have a 1098T, there is no place in TurboTax for me to put Tuition/Fees unless I summarily fill in the 1098T Box fields based on what I know, which I could do because, to the best of my knowledge, that form data is not included in my submission since I am not eligible for any educational deduction/credits. Without doing that, TurboTax provides no screen for my situation and tells me that my child needs to file taxes because scholarship/assistance exceeds educational expenses, which they clearly do not. I contend that this is an unhandled situation within TurboTax.
My analysis is that scholarship money does not exceed tuition/fees (as indicated in TurboTax) and that taxes do not need to be filed in my child's name. Would you agree?
You don't qualify for a tuition credit, apparently because your income is too high (If you think it's some other reason, you probably do qualify).
Your student does not qualify for a credit, because he is your dependent. None of his scholarship is taxable because his qualifying expenses (tuition, fees, books)exceed his scholarship amount.
He does not have a 1098-T.
You should not be entering education information in TurboTax. There's nothing to claim or report.
Even if you had a 1098-T, you could ignore it, in your situation. The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.
So, If I blank out the Scholarship and other education expenses, my taxes owed shoots up about $400. What am I missing here? Is this related to the money dispersed from the 529 as is reported on the 1099Q?
Incidentally, if I put in the numbers that should have been on the 1098T in the area for the 1098T, my taxes owed drops about $600. Looks like it is seeing the money coming out of my 529 as taxable unless it can see the corresponding expenses.
Yeah, a 529 distribution and a 1099-Q changes things.
There are three things you can do with your Qualified educational expenses (QEE):
- Allocate then to scholarships (so that the scholarship remains tax free)
- Use them to claim an education credit
- Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable
TurboTax allocates QEE, in that order, until you tell it otherwise.
In addition, room & board are qualified expenses for a 529 distribution, but not for a credit or tax free scholarships.
Qualified Tuition Plans (QTP 529 Plans) Distributions
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.
$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
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. Most people come out better having the scholarship taxable before the 529 earnings.
1099Q recipient is my wife.
1. Why can't I just fill in the values in the fields for the 1098T even though I didn't get one?
2. Does my child need to file a tax return?
3. What IRS publication should I be reading to better figure this out?
4. Was it a mistake to pay Spring semester in December? I think that inflated my 1099Q numbers.
OK, what if I entered the additional Tuition/Fees in the "Books and materials required to be purchased from the school" line, and then under scholarships I list just the amount above tuition?
Q.1. Why can't I just fill in the values in the fields for the 1098T even though I didn't get one?
A. 1. That would make things easier. But, entering a 1098-T tells TT to check the box of form 8863 that you received a 1098-T and you didn't
Q. 2. Does my child need to file a tax return?
A 2. Not based on the little info you've provided. But, when you get done he MIGHT have some taxable scholarship
Q. 3. What IRS publication should I be reading to better figure this out?
A. 3. Pub 970 https://www.irs.gov/pub/irs-pdf/p970.pdf
Q4. Was it a mistake to pay Spring semester in December? I think that inflated my 1099Q numbers.
A 4. It depends. If you wanted to use the expenses on your 2020 tax return, then no. If it woulda been better to use those expenses on you 2021 return, then yes. You you're lucky to have a school that gives you a choice.
Q 5. what if I entered the additional Tuition/Fees in the "Books and materials required to be purchased from the school" line, and then under scholarships I list just the amount above tuition?
A 5. There are proper places for entering all expenses. But, you can use workarounds if you know what you're doing.
Provide the following info for more specific help (even if you provided it early, we need it in 1 place):
- Are you the student or parent.
- Is the student the parent's dependent.
- Box 1 of the 1098-T (or total amount of tuition and fees paid in 2020)
- box 5 of the 1098-T (or total amount of scholarships received))
- 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 student lives at home, what is 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
- Are you certain you don't qualify for a tuition credit
First of all, I am waiting on a new 1099Q. After reviewing the number, it was discovered that refunds from room & board were not applied back to the 529 properly. My account manager is fixing it and issuing a new 1099Q. I think that will resolve some and maybe most of my problem because TurboTax won't think money was taken out of 529 and not used for education expenses, which is one of my main problems.
College will not issue 1098T, and that is part of the next problem. Called Bursar again today and had child log into student account. We can see the 2019 form and no 2020 form. Bursar claims scholarships exceeded tuition and fees. So, the new issue is that money was sent from the 529 to the college in December (shows up in 1099Q), but the college did not receive and process it until January. Advice on this challenge?
Now, your questions and my answers:
- Are you the student or parent. I am a parent
- Is the student the parent's dependent. Student is my dependent
- Box 1 of the 1098-T (or total amount of tuition and fees paid in 2020) No 1098T; I contend that it is $13481 based on money dispersed from 529
- box 5 of the 1098-T (or total amount of scholarships received): No 1098T; $10750
- Is any of the Scholarship restricted; i.e. it must be used for tuition. No
- Box 1 of the 1099-Q: Estimated to be $9171 (See note above, awaiting new 1099Q)
- Box 2 of the 1099-Q: TBD/unknown at this time; dependent on new 1099Q
- Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)? A Parent
- Room & board paid. If student lives off campus, what is school's R&B charge. If student lives at home, what is school's meal plan allowance. On campus housing, $3833 after applying refunds for R&B, but includes expenses for Spring 21 semester that were spent out of 529 in December 2020.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers: $2030
- How much taxable income does the student have, from what sources. $0
- Are you certain you don't qualify for a tuition credit? MAGI greater than threshold.
$13,481Tuition & Fees
+ 2030 Books etc
= 15,511 Qualified educ expenses (QEE)
- 10,750 Paid by scholarship
= 4,761 QEE Available for 1099-Q
+ 3833 Room & Board
= 8594 Total expenses avail for 1099-Q.
- 9171 529 distribution shown on 1099-Q
= $ 577 Non qualified portion of 529 distribution. This is not the taxable amount. The taxable amount is 577/9171 = 6.3% of the box 2 amount
With a little searching you should be able to come up with another $577 of food costs. In which case, do not enter either the 1099-Q or any educational expenses on your tax return. It's not required.
Worst case, the student reports $577 of taxable scholarship on his return. The first $12,400 of taxable scholarship is not taxed. Technically he doesn't even need to file. Some tax advisers say file anyway just to document that he reported it.
Even if your numbers change, the answer is going to be the same: you report nothing; your son reports taxable scholarship, in the amount, to make up the shortfall.
1. If you get a refund, you are required to return it to the 529 plan within 60 days to keep it tax free. Alternatively, you can just spent it later, in the same calendar year (not academic year) for expenses, including food
2. The new issue is that money was sent from the 529 to the college in December (shows up in 1099Q), but the college did not receive and process it until January. First, try to avoid this in the future. To be qualified the money must be spent in the same calendar year as the distribution. If questioned by the IRS (unlikely), you can probably successfully argue that you meet the intent of the rules . Unfortunately this is a common problem. But, I have not heard of of anyone having an actual IRS dunning over it.
Thanks for all your help, I have made great strides in this area. We were able to get a 1098T from the college after pressing the issue slightly (making it much easier to enter in to Turbo Tax) and we worked with the 529 administrator who was able to re-code most of the room & board refunds as refunds and not contributions (their foul up, even after I specifically asked them to do that when I started getting those refunds) so I will be getting an updated 1099Q.
It is not clear based on these updates if I still need to submit a return in my child's name, but I will do it anyway since there is still a delta between the payments and scholarships for 2020. Will a state return also be required in this instance?
There are more expenses that the 529 can cover. Please see 529 expense withdrawals. Your room and board is also very light. If indeed there is scholarship left, your child should claim the income. If your state of residency has tax, then a state may be required depending on the amount of income and the state's particular laws.
If you reply with a state and total income earned, we can look that up for you.
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