There has been no change, the person whose name is on 1099-Q should file the 1099-Q. He is the "recipient"**.
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.
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
He has $240 of taxable
income (600-360)
**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.
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.
