Q. So, am I correct to start with, that he is able to file as SINGLE, and check the box saying no one else is claiming him as dependent?
A. Yes. He apparently provides more than half his own support (scholarships are ignored in the support calculation).
The 1098-T is correct. The school did (apparently) apply the MPACT payment to tuition (5022- 4302 = 720). So, enter the 1098-T just as it is. It doesn't matter that the $4302 was refunded to him. It only matters that there was that much tuition paid. Because the MPACT was applied to tuition, do not enter the 1099-Q, at all.*
He is not eligible for the refundable portion of the AOTC, because he is under 19 (or a full time student under 24) and less than half his support came from his earned income. He is eligible for the non refundable portion, which should be $720, unless you have some book and computer expenses to also enter. But to get it, you must use a workaround in TurboTax (TT). When asked how much of the scholarship was used for room and board, enter the full $11,924. That frees up the $720 net tuition (pus any books, computer) to be used for the AOTC. The $11,924 scholarship becomes taxable income on his tax return.
Also note that all that taxable income (wages + scholarship) will cause some of his social security to be taxable (see the social security worksheet for details).
I am not specifically familiar with the Mississippi MPACT rules, but a cursory review says the money must be used for tuition and cannot be applied to room &board (most 529 plans can be used for R&B).
I roughly calculate that he will owe $542 in federal tax. Any book or computer expenses you can enter should reduce that dollar for dollar. For example, $100 in book expenses increases the AOTC by $100 and reduces the amount owed to $442.
Q. So, now there will be LATE FILING consequences?
A. Yes, about $25 if the IRS even bothers to bill you. The quicker you file, the less likely that is to happen. But, if you did not make an estimated payment when you filed for an extension, you're already subject to a LATE PAYMENT penalty. The IRS will bill you; you don't calculate your own penalty.
More info on penalties at https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/irs-penalty-miss-april-18-filin...
*You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, to cover the distribution. 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. Trying to enter the 1099-Q, when it's not needed, just risks the chance of an error, in TurboTax.
References:
- 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."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
