Why does my dependent daughter's MA state return say she is eligible for a tuition deduction on schedule Y line 15?

[crash12_mn]

I am preparing my dependent daughter's return and Turbotax prompts me to enter education expenses on her federal return. This then prompts me to enter the 1098-T. The Tuition from Box 1 is then flowing thru to her MA state return and shows up on Schedue Y line 15 as a deduction (which I don't think is correct) . Turbotax wont let me delete Schedule Y.

How do I prevent Schedule Y line 15 from showing this deduction on her State return if Turbotax prompts me to enter a 1098-T on her Federal return even thought she is my dependent? 

Turbotax prompts me to enter the 1098-T on my daugher's return as follows:

"It looks like you're trying to enter the education credits for yourself, but earlier you indicated that you were claimed as a dependent on someone else's return - probably a parent's.

Generally, whoever claims you as a dependent should take the education credits. Yes, even though your school probably sent Form 1098-T to you, in your name, with your Social Security number. However, you should enter your education expenses to avoid paying tax on your Education Savings Account (ESA) or qualified tuition program (QTP)."

[KrisD15 · Accepted solution]

Since the student is your dependent, you should enter the 1099-Q (from distribution) and the 1098-T (from the school) into your TurboTax program so that the TurboTax program can do the math. 

If the student needs to report any income (from those two tax documents) YOUR TurboTax program will tell you how much. 

The 1099-Q and/or 1098-T does not need be entered into the student's TurboTax program. If he student needs to report income, that income amount (only) can be entered as "Other Income" with the description SCH (for scholarship income) or 529 for distribution. The amount (only) may also be entered in the students education section in TurboTax. 

[crash12_mn]

Excellent clear answer thank you!

This Turbotax help Forum is one of the major reasons to stick with Turbotax.

[joebyrne]

Seriously?

[JillS56]

Correction on the statement made by @KrisD15.   The 1099-Q is not reported on the parents' return unless the 1099-Q is issued to the parent.   The 1099-Q (if it needs to be reported) must be reported on the return of the recipient of the 1099-Q.  Whose name and social security number appear on the return?   That is the return, if required, the 1099-Q should be entered.   

The 1099-Q does not have to be reported on the return if the distribution was used for qualified educational expenses.   A 1099-Q only needs to be reported if there is an excess.   To determine if there is an excess, add up the tuition from the 1098-T plus the room and board and the books and other required material for the course.   Then from this amount subtract any scholarships/grants in Box 5 of the 1098-T.   If the difference is equal to or more than the 1099-Q.   If not, you do not have to report the 1099-Q.   If there is a difference then the excess is reported in other income (Line 8z of Schedule 1).   

The 1098-T cannot be used to report the on the parent's return unless there is excess tuition after applying subtracting Box 5 from Box 1.    Room and board is not a part of the education credit calculation but is a part of the calculation for determining the taxability of the 529 calculation.    If the remaining tuition is more than the amount on the 1099-Q less the room and board, books, and other required course material, then a tuition credit may be claimed on the excess.   Tuition (Box 1) - Scholarship/Grants (Box 5) = Amount claimed for education credit.   Add to the eligible tuition the room and board, books, and required course material, is this amount more than the amount reported on the 1099-Q.    If so the amount of tuition above the amount reported on the 1099-Q is eligible to be claimed.   For example:  Tuition = $15,000 - Scholarships/Grants = $5,000 = $10,000 remaining Tuition.   Remaining Tuition $10,000 + Room & Board, etc. = $14,000 = Total 1099-Q eligible = $24,000.   1099-Q amount = $18,000 less the 1099-Q eligible amount = $24,000 ($18,000 - $24,000 = $6,000 of available tuition for education credit).  

[crash345u]

This just became even more confusing. If the 1099-Q (issued to the dependent) goes on the dependent's return (assuming she owes tax on some of the distribution) then exactly what part of the Turbotax interview should be completed on the Dependent's return?

The first reply to the original question made more sense since the education credit goes to the parent and if the dependent goes thru the same Turbotax interview screens, the error message stated in the first post appears.

It makes sense to report whatever is owed on the Dependent's return as stated in the original reply:

If the student needs to report income, that income amount (only) can be entered as "Other Income" with the description SCH (for scholarship income) or 529 for distribution. The amount (only) may also be entered in the students education section in TurboTax. 

It is very confusing coordinating the 1099-Q between these returns along with the education credits.

[JillS56]

Yes, the best way to report the excess 1099-Q on your daughter's return is to report the income amount (only) can be entered as "Other Income" with the description SCH (for scholarship income) or 529 for distribution. The amount (only) may also be entered in the student's education section in TurboTax. 

Use the prior response to calculate the amount of excess 1099-Q and then enter the income amount under Other Income on Schedule 1 Line 8z and for the description enter "Excess 1099-Q".   

[crash345u]

Does this mean that the 1099-Q  itself  (total distribution) is not reported on either return when there is taxable income ?

The only thing that gets reported is  Excess taxable income from the 1099-Q  distribution?

Thank you for clarifying this.

[KrisD15]

Although @JillS56 is somewhat correct, (the student is liable for claiming the income), unless the student is claiming the entire distribution, the dependent student's program cannot calculate the taxable portion based on expenses if expenses are also used by the parents towards a credit. TurboTax programs do not talk to one-another. 

If you are clear on who should claim what, you can enter the 1099-Q on the student's return, 

but again, the parents that claim the student needs to enter all education documents into their TurboTax program if they want their program to do the math. 

The parents' program will tell the parents what the student needs to claim. 

Only the amount of income that needs to be claimed is then entered into the students  TurboTax program. 

IF any of the distribution is taxable, the student reports that Unearned Income amount as "Other Income" on Schedule 1. 

If any Scholarship income is taxable, that is reported as Earned Income on the 1040 line 1. 

@crash345u