Student no longer qualifies as dependent

[brad1986]

My son is a full-time graduate student who turned 24 in September 2020, and since he earned over $4,300, I believe he no longer qualifies as my dependent. He meets all other criteria for dependent (living at home, receives over 50% support from me, etc.)

Some of his education expenses are paid from his 529 account, and some are paid by me. On whose return do I include the 1098T? How does this impact his tax return?

[Bsch4477]

He files his own return and claims any education credit that is eligible to get and  reports the 1098-T on his return. He claims all education expenses even though you paid them. 

[Hal_Al]

@brad1986  said: "Some of his education expenses are paid from his 529 account"

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary”. 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.

If you are the recipient, you have to coordinate with your son on allocating the expenses between your tax returns. 

**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 your son to claim the tuition credit. 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.

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."