The below is in two sections. First covers college expenses, and the 2nd is specific to the 1099=Q. Please read it all so you complete the tax return correctly.
College Education Expenses
Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:
- Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*
- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.
Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.
Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”. The first one indicates a choice. The second one provides no choice.
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited institution and:
Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a half time student) and:
the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)
The parents will claim the student as a dependent on the parent's tax return and:
The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:
The parents will claim all educational tax credits that qualify.
If the student will be filing a tax return and:
The parents qualify to claim the student as a dependent, then:
The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option ieven f the parent's qualify to claim the student as a dependent, and the parents do not claim them.
Now here’s some additional information that may or may not affect who files the 1098-T. If the amount of scholarships/grants exceeds the amount of qualified education expenses, the parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.) Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.
In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.
If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.
If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.
Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6200, then the student should file a tax return so as to get those withheld taxes refunded.
First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to line 21 of the 1040 with an annotation of "SCH" next to it.
Next, 520/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred to line 21 of the 1040 with an annotation of "SCH" next to it.
Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.
When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.
Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over that are taxable, then while the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.
Now, should my son file a Tax return. No taxes were withheld for him. Who should report 1099-Q? Who should claim American Opportunity Credit?
" My son has 1099-MISC income totalling 2K"
Am I to assume that income was received by your son for self-employment? If so, then he is required to file a tax return since the self-employment income is more than $400. If not received for self-employment, *and* his SSN is on the 1099-MISC, he still reports it. But how he reports it matters based on what box of the 1099-MISC the income is reported in, and why he received that money. Scholarship I assume, but I'd like to not assume and know for sure.
Since his 1099-MISC income is less than $6350 does he need to file a return?
I didn’t understand your reference to $400.
That's because with self-employment income, if it's more than $400 then he will pay self-employment tax on the amount over $400. Now he won't pay regular tax if it's under $6,350, but he will pay the self-employment tax if it's over $400. The SE tax is basically the employer contribution to his Medicare and social security account.
So answer these questions for me please, to determine how to deal with the box 3 1099-MISC income.
Is the box 7 1099-MISC more than $400?
Is the total of both 1099-MISC's more than $6,350?
Does he have any other reportable/taxable income not reported on a 1098-T box 5 or a 1098-Q? If he does, then it would not be scholarship money and would be reported to him on a W-2 if earned, and something like a 1099-INT or 1099-DIV if not earned Basically, does he have any income that you've not already made us aware of in this thread? (such as a student loan where the student is the *primary* borrower on the loan.)
MY SON: 1st 1099-MISC Box 7: $1185, all other boxes are empty - this is for Chess Teaching
2nd 1099-MISC Box 3: $733.80, all other boxes are empty - this is for Chess Teaching as well.
He also has a 1099-T Box 1: $20,050 Box 5: $13,516 Box 8: checked
1099-Q: Box 1: $1000 Box 2: $386 Box 3: $613 - Paid for college Tuition
MY SELF: 1099-Q with my SS#: Box 1: $15,106 Box 2: $3914 Box 3: $11,192 Paid for College Tuition
Please let me know how to use TurboTax to report these.
For the next tax season, I strongly urge you to change the beneficiary on the 529 account to the student.
Also note that weather you claim the student as your dependent or not, doesn't matter. The fact that you *QUALIFY* to claim the student as your dependent, means that the student has *no choice* and must select the option for "I can be claimed on someone else's return".
The student will get some credits, since they do have earned income. WHile it won't be much, any amount of credit is more than what you the parent would get, because of your AGI being over $180K.
If you do *not* claim the student as your dependent, the dependent still has to select the option for "I can be claimed on someone else's tax return". But for the AOC (since the student has earned income) the student's program will ask them two question:
1) Do you qualify to be claimed on someone else's tax return? There answer to this question will be YES.
2) Are you being claimed on someone else's tax return? If you do not claim the student as your dependent, then when they answer this question NO, the student will be allowed to take the amount of the AOC which they will qualify for, based on the student's earned income. At a minimum, the student will get "up to" $1000 of the refundable portion of the credit.
If the education expenses were paid with scholarship funds please see the following:
You cannot include the room and board expense, as is not an option in TurboTax when you enter Form 1098-T and other qualified education expenses. If you could include it, that would not negate the taxable portion of the excess scholarship funds. A scholarship or fellowship grant is tax free only to the extent that it doesn't exceed your qualified education expenses. Room and board are not qualified education expenses. You can see the following IRS link for more information: https://www.irs.gov/publications/p970/ch01.html
However, if your education expenses were paid with funds from a Qualified Education/Tuition Program (payments from those programs would be reported on Form 1099-Q), then the qualified education expenses would include room and board, as long as the room and board expenses meet the following requirements:
Expenses for room and board must be incurred by students who are enrolled at least half-time.
The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts.
The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
You may need to contact the eligible educational institution for qualified room and board costs.
Please see the following IRS link for more information: https://www.irs.gov/publications/p970/ch08.html
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