i agree with @SusanY1 explanation with one exception; there was no discussion of AOTC. are you eligible? (joint income under $160,000). If you are not eligible, then I agree with @SusanY1 comments. Otherwise, here is how it should work.
1) 1098-T goes on YOUR tax return (I assume your child is your dependent)
2) There are $20,000 of net expenses on the 1098-T. (Box 1 less Box 5)
3) you should get $2500 of AOTC credits which consumes $4000 of the expenses (IRS math) But look at form 8863 for the exact amount. $4000 is the maximum.
4) that leaves $16,000 of expenses and let's add in the $15,000 for room and board and $2000 of books or $33,000
5) Assuming your child's social security number is on the 1099Q, there was a $37000 distribution from the 529 but only $33,000 of expenses remaining ("the double dip rules"). Therefore $4,000 didn't need to be distributed so $4000/ $37000 or 10.8% of the BOX 2 earnings on the 1099Q is taxable EARNED income to YOUR CHILD (not you!). And if he has no federal withholdings and his Earned Income is lower than lesser of total Income + $350 OR $12,000, then there is no need to file as there are no taxes to be paid.
make sense? it's not easy!
