This is fairly easy: just don't report the 1099-Q, at all. You have sufficient expenses, whether or not you claim the AOC. You have sufficient expenses even ignoring the issue of the refund. He doesn't need to enter the 1098-T either. He doesn't need to file a tax return, unless he needs a refund of withholding from the job (unlikely).
I asked for just the school's board charge, as that is the conservative approach. Some argue that you can use both the room and board charge, when the student lives at home, especially if you charge him rent (or "sign a promissory note"). Either way, the numbers are small enough that it's not gonna make a difference.
You said: " I’m thinking neither of us should take the AOC until his education expenses increase in subsequent years".
That's usually good advice. But the numbers, in this case, may support the "bird in hand" philosophy. The maximum AOC is $2500 based on $4000 QEE. But the calculation is heavy on the first $2000 QEE. $2794 QEE ($2240 tuition + $554 books) gets you an AOC of $2198. Even if you use those expenses for the AOC, his other expenses are still enough for the 1099-Q, and it does not need to be filed.
Him claiming the AOC, on his own tax return, is not an option until he turns 24.
The $4325 (in box 1 of the 10999-Q) is not income. It's the $2444 in box 2 that's potentially income. And even when it is, it's only a fraction, of that, that is taxable.
