First, as RayW7 first suggested, ignore the 1099-Q. Since you know it cover expenses, none of it is taxable and it does not need to be reported.
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.
She has $1,856 of taxable scholarship to report as income. If that is her only income, it is less than the filing threshold* and she does not need to file a tax return. You can ignore that too.
*Your dependent child must file a tax return for 2020 if he had any of the following:
- Total income (wages, salaries, taxable scholarship ) of more than $12,400 (2020).
- Unearned income (interest, dividends, capital gains. unemployment) of more than $1100.
- Unearned income over $350 and gross income of more than $1100
- Household employee income (e.g. baby sitting, lawn mowing) over $2100 ($12,400 if under age 18)
- Other self employment income over $432, including money on a form 1099-NEC
Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.
