Yes, from what you describe, the entry seems correct.
"I have a son in college who files his own tax return due to some earned income and his scholarship unearned income. I have several questions for this scenario to make sure I'm doing things right."
You later say you are claiming him so I assume he is filing as a dependent. Scholarship income is "earned income" if claimed by the student. You later say you put this amount on the student's 1040 line 1 which is correct.
If the distribution was used for education purposes, you needn't enter the 1099-Q at all, but entering it and the corresponding expenses does no harm. Remember that a distribution may also be used to cover Room and Board expenses.
Entering the 1098-T into your program is usually done to generate an education credit, which you say you are not eligible for; Therefore again it is not necessary for you to report it, however the program should also advise you from this entry if the student needs to claim income. If Box 5 (Scholarships received) is larger than Box 1 (Tuition Paid) the difference would be the income the student claims, unless the scholarship posted early and will be applied to expenses next year. Of course the numbers would need to be adjusted if you are applying the distribution to tuition. In that case the tuition expense would need to be decreased or the distribution partially taxed.
If there is tax due on the distribution, that tax is claimed by the Taxpayer named as having been issued the 1099-Q, either owner or student.
Again, the process you described sounds fine and accurate.
The "problem" with the education section is that the taxpayer has options of how they want to allocate expenses and payments. The allocation usually has obtaining an education credit as a priority, but since you are not eligible for an education credit, it is irrelevant.
The only other option I see for your situation is if the student has a large tax liability, he COULD claim the NON-REFUNDABLE portion of the American Opportunity Tax Credit. To do this, you don't claim him, he selects "YES, Someone else CAN claim me" but "NO, Someone else will claim me"
He will still be a dependent (just NOT claimed), but the credit can be used to offset his tax liability.
Additionally, I cannot say how you not claiming him will affect your tax return.
IRS Pub 970
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