Child 1: the net difference on the 1098T box 1 and Box 5 is $11,995,
$4000 of that is consumed to yield the $2500 AOTC credit (look at the form and you can see how the IRS uses $4000 to get to $2500)
that leaves $7995,
since 7995 is greater than 6940, nothing in box 2 is taxable. There is 1055 remaining
Child 2: the net difference on the 1098T box 1 and Box 5 is $13,495,
$4000 of that is consumed to yield the $2500 AOTC credit (look at the form and you can see how the IRS uses $4000 to get to $2500)
that leaves $9495,
add in the 1055 unused from Child 1 so we have 10550
that means that 3650 of the 14200 distribution wasn't needed and therefore 25.7% (3650 / 14200) of the Box 2 earnings is taxable.
you weren't clear on whose social security number was on the 1099Q. If that is your son's, then the 1099Q and the related taxable earnings goes on HIS return.
make sense?
