let me go back for a slight amendment as you have a point .
1) you can see how the AOC is calculated on form 8863 / lines 27 - the expenses consumed to get the credit are $4,000.
2) that leaves $16,000 of expenses left to consume from the original $20,000.
3) on the student info worksheet, the following numbers should be reflected (based on your example)
line 5 - $500
line 6 - $6,000
line 8 - $1500
line 1 should be pre-populated with $12,000
line 13 should total $20,000 (pre-populated)
line 17 - $4,000 - this is the $4,000 consumed by AOC
4) then ensure the optimizer is run on part VII / line 4 of that same student info worksheet
5) click the 'quick launch' and on the pop-up, click the button on line 1 to ensure the optimizer is launched
6) On the 1099-Qs, just for argument sake, I punched in $100 of earning on YOUR 1099-Q and then $1000 of earnings collectively on the grandparents 1099-Q (adjust line 3 so it's the net of Lines 1 and 2)
7) if you review all the 1099-Qs, the sum of Line 1 should be $18,000 which is what was disbursed
😎 line 2b should sum to $16,000 which is the $20,000 of expenses less the $4,000 that was consumed by AOC
9) that means $2,000 too much was distributed from the 529's collectively.
10) that ratio of $2,000 too much divided by $18,000 disbursed is 11.1%, so 11.1% of the Line 2 earning is taxable.
11) you should find $11 of taxable income on YOUR 1099-Q which will carry over to Schedule 1, line 8
12) you should find $111 of taxable income on the SUM of the grandparents 1099-Q which should be carried to your CHILD's tax return. But if your child does not need to file, it's just nice wallpaper!
does that now make sense?
