@IreneOku - Nobody needs to file the 1099-Q, sine it was all used for qualified educational expenses.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
That said, you do need to coordinate with the student and her parents. For example, if they used some of the tuition expenses to claim a tax credit or deduction, you may have to pay some tax on your 1099-Q distribution. It's best explained by example.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship***
-$4000 used to claim the American Opportunity credit on the parent's return
=$3000 Can be used against the 1099-Q (on your return)
Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)
***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Students are in low tax brackets and frequently pay no tax on "taxable" scholarship.
