This just got more complicated.
Here's what I understand so far:
- The 1099-Q is in your daughter’s name (she's the recipient) not grandpa
- The net distribution after returning money was $3616. That makes the earnings portion $1663 (3616 / 9070 x 4173 = 1663).
- Total expenses are $9374
- Scholarships are $6875
- The student is your dependent
- She has $9029 of other income, including $6030 of unemployment. Unemployment is not earned income, so she will not get a regular standard deduction. She’s not gonna get all her withholding back and she does need to report either the 529 distribution and/or the taxable scholarship
Are you planning to claim the tuition credit? At your income (assuming Married Filing jointly filing status), you are eligible. There is a loop hole available to claim it by having your student report more scholarship (or 529 money) as taxable. See example previously provided.
