I'm trying to figure out the best way to file my father's and sister's tax return to maximize their credits and deductions. Some quickfacts on our situation:
- In 2021, my sister was a full-time student but was over the age of 24. She had zero wages but received a 1099-Q for 529 distributions
- She lived with my dad the entire year and he provides 100% of her support
- Our dad is divorced so his filing options are either Single or Head of Household
I initially filed my sister's tax return as a single taxpayer thinking, because she is older than 24, she no longer qualifies as a dependent. I also wanted her to receive the $1,400 rebate credit since she did not get one (previously was claimed as a dependent). Since her wages were zero and her $8,000 of 529 distributions were used for qualified tuition costs, her taxable income was zero and her refund was $1,400 for the rebate credit.
Now I am working on my dad's return and because he claimed her as a dependent previously, TurboTax goes through the questions of "let's see if ___ still qualifies as your dependent". One of the questions asked if she made more than $4,300 which I marked no (thinking the 1099-Q did not count as income) so even though she is older than 24, because she had zero income, she qualifies as a dependent. I'm wondering if I answered this correctly because her 1040 line 1 shows $8,000 because of the 1099-Q so that's above the $4,300 dependent threshold
Questions:
1. Do 1099-Q distributions count as earned income for my sister? If yes, she cannot be claimed as a dependent. If not, she can be claimed and my dad can claim Head of Household
2. Why didn't the Earned Income Credit generate for my sister's return?
3. Who claims any sort of education/AOTC credit (if anyone) on my sister's tuition?
