TurboTax is saying my 1099-Q Earnings are taxable, but they are *NOT* adding them on to my income,. They still give my children an American Opportunity Credit (although the credit is less than the Basis--the part I originally paid in and already paid taxes on.) I've already paid Turbotax and am ready to file, but I am concerned this is not correct, because my refund is almost twice what it was last year (having 2 kids in college is the difference in how I'm filing.)
1) Am I allowed to take the American Opportunity Credit, since the credit is less than the Basis, even though the tuition was completely paid for via a pre-paid tuition plan?
2) Why is Turbo Tax saying the Earnings on the pre-paid tuition plan is taxable, but then not actually adding it on as income at any point?
3) One child received a scholarship, which gave him a refund from the college from the pre-paid tuition. Everything I read says this refund should be taxable, and I marked on the Turbo Tax form that the scholarship was *not* used to pay college expenses, but it is also not showing up as income.
Thank you to anyone who can help me understand this better.
And to clarify, neither of my children are filing a tax return, they are both dependents on my tax return, so my above questions refer to my tax return.
