Actually, it depends.
- If the amount in box 1 of the 1099-Q is included in box 5 of the 1098-T (which is not unheard of) then the 1099-Q gets reported nowhere on any tax return. But you should confirm beyond a doubt that this is the case. There is a possibility you'll get a nasty gram from the IRS and you need to be able to prove this to the IRS. (Can be done with a printout from the student's online account.)
- If the 1099-Q amount is not included in box 5 of the 1098-T:
-When added to the beneficiary recipient's other taxable income (W-2 income for example) is less than $12,300 (24,600 if married filing joint), then it doesn't have to be reported on any tax return.
- When added to the beneficiary recipient's other income it exceeds $12,300 ($24,600 if married filing joint) then it has to be included on the beneficiary recipient's tax return. If indicated it was used to pay qualified education expenses with, or the unqualified but "allowed" expenses of room and board *IN DIRECT SUPPORT* of the education, it won't be taxable.
The point is, if it's not included in box 5 of the 1098-T and it doesn't get reported to the IRS, chances are it will generate a paper audit-by-mail if the addition of that distribution to the to the the beneficiary recipient's other income would have required them to file a tax return at all.
I've also re-worded my prior response to reflect the correction. Thanks.
