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lorettawaynepark20
Level 1

scholarship money

My daughter's 2020 1098-T reported 9613 of qualified tuition expenses and 11400 of scholarships.  However, only 6400 of the scholarships was used for 2020 qualified expenses.  The remaining 5000 will be used on 2021 spring semester tuition.  Can 6400 of the scholarship be reported on the 2020 return  since this  was the amount that was used for 2020 qualified expenses or does the full 11400 have to be reported on the 2020 return?  If I have to report the full 11400 on the tax return, then we will have taxable income. Would she report the taxable income on her tax return or would I?  We are claiming her as a dependent and she has no other income.  

9 Replies
Hal_Al
Level 15

scholarship money

Q.  Can 6400 of the scholarship be reported on the 2020 return  since this  was the amount that was used for 2020 qualified expenses or does the full 11400 have to be reported on the 2020 return?

A. Report only the $6400.  You will reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2020 expenses".  Or you can you can just change box 5 to $6400.

 

Be sure to keep track of the adjustment for next year. 

 

Q. Would she report the taxable income on her tax return or would I?

A. If any of her scholarship is taxable, it goes on her return.  If she has no other income, she does not need to report taxable scholarship under $12,400. 

 

 

lorettawaynepark20
Level 1

scholarship money

Thank you. I  adjusted her scholarship amount by 5000.  She also has a qualified education plan and she received a 1099-Q.   From my understanding, the beneficiary/recipient, which would be my daughter, has to report the info from the 1099-Q on her return, not our return...is this correct?  The distribution amount in Box 1 is 2031 and the earnings amount in Box 2 is 1249. Her qualified expenses are 9613 and her scholarships are 6400 leaving her an adjusted qualified expense amount of 3213.  Since the distribution amount is less than her adjusted qualified expenses, does she need to report the info from her 1099-Q on her return?

 

Hal_Al
Level 15

scholarship money

Q. Since the distribution amount is less than her adjusted qualified expenses, does she need to report the info from her 1099-Q on her return?

A. Simple answer: no. 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. 

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." 

 

But, you (most likely) want to use some of those expenses to claim the Tuition credit, on your tax return.  The AOTC is very generous and has a refundable feature.

Furthermore, room and board are qualified expenses for a 529/ESA/QTP (qualified education plan), even if the student lives at home.  So you should still be able to avoid tax on the QTP distribution.

________________________________________________________________________________________

 

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.

lorettawaynepark20
Level 1

scholarship money

Before I started the chat with you, I started my daughter's tax return in Turbo Tax and I included the 1099-Q info and the 1098-T info but than I realized I needed some advice.  As I stated before,  the distribution amount in Box 1 is 2031 on the 1099-Q and the earnings amount in Box 2 is 1249. Her qualified expenses are 9613 and her scholarships are 6400 leaving her an adjusted qualified expense amount of 3213.  You said when the box 1 amount on form 1099-Q is fully covered by expenses (which is the case in this situation), TurboTax will enter nothing about the 1099-Q on the actual tax forms.  However, when I started the return earlier, I entered the 1098-T and 1099-Q info on her return and Turbo Tax did enter the earnings on the tax return and it is saying my daughter owes $14.00.  I don't understand why she would owe anything when the scholarships are not taxable and Box 1 on the 1099-Q was fully covered by expenses.  Can you explain this? 

Hal_Al
Level 15

scholarship money

Q.  Can you explain this? 

A. The interview is complicated and it's easy to make mistakes.

One possibility is that TurboTax allocated part of your dependent's college expenses to claim the Tuition credit, even if you are not eligible or otherwise did not claim it. That reduces the amount that can be used to claim the  529 earnings, shown on the 1099-Q, as being totally tax free. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.  You may reach that screen sooner.

 

You can still delete the 1099-Q and 1098-T, since they don't need to be entered.

 

You haven't commented  about room and board and books and computer expenses or the possibility of claiming the American Opportunity (Tuition) Credit (AOTC). The AOTC could be as much as $2500 in your pocket.

lorettawaynepark20
Level 1

scholarship money

Okay.  I'm going to delete the 1098-T and 1099-Q info and not file a tax return for my daughter since she does not need to file a return.  Yes we paid rent for her during 2020...around 6000 and we bought her a computer.  

 

So just to recap...my daughter does not need to file a tax return.  We will include her 1098-T info on our return and we do not include any of the 1099-Q info on our return since she is the recipient.  I will start working on our return now and look into the AOTC .  Thank you

Hal_Al
Level 15

scholarship money

Q.my daughter does not need to file a tax return.?

A. That's correct.

Q. We do not include any of the 1099-Q info on our return since she is the recipient.

A. That's correct.

Q.  We will include her 1098-T info on our return?

A. Yes, but Only is you decide to claim the AOTC.   Otherwise it doesn't get entered anywhere. The 1098-T is only an informational document. The numbers on it are not required to be entered onto your  or your student's tax return.

lorettawaynepark20
Level 1

scholarship money

We took money from a retirement account during the  2020 year and we received a 1099-R.   A portion of the distribution on the 1099-R (14000) was deposited into a traditional IRA in April 2020 but for 2019.  This 14000 was deducted as an IRA deduction on our 2019 tax return to lower our taxes.  I am entering the info from our 1099-R on our 2020 tax return and I got to this question:

 

Tell us if you moved the money through a rollover or conversion
We need to check if you moved any of this money into another retirement account (or returned it to the same account). In some cases, this can lower your tax liability.
 
I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)
I converted some or all of it to a Roth IRA
I did a combination of rolling over and converting some or all of this money
I didn't rollover or convert this money

 

Do I need to check the first one...I rolled over some of it to an IRA?  I'm thinking I need to check the last one and say I did not rollover any of the money since the 14000 was deposited for 2019 and claimed on the 2019 tax return but I wanted to make sure. Please advise.

 

 
macuser_22
Level 15

scholarship money


@lorettawaynepark20 wrote:

We took money from a retirement account during the  2020 year and we received a 1099-R.   A portion of the distribution on the 1099-R (14000) was deposited into a traditional IRA in April 2020 but for 2019.  This 14000 was deducted as an IRA deduction on our 2019 tax return to lower our taxes.  I am entering the info from our 1099-R on our 2020 tax return and I got to this question:

 

 

What you are saying is not allowed.  A retirement distribution  from a qualified plan can be rolled in to a Traditional IRA within 60 day of the distribution or if a box 7 code G, when  the check is delivered to the receiving IRA.     A rollover is NOT a new contribution that can be applied to 2019.       You can make a 2019 contribution up to $6,000 ($7,000 of over ate 50) but it must come from earned compensation (money you worked for).

 

Unless the 1099-R box 1 money (or a part of it) was rolled into a IRA on 2020 within 60 days then is is not a rollover.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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