My first-year college son (who I claim as a dependent) received a 1099-Q (for 529 distributions) and a 1098-T (for post-9/11 GI Bill benefits and scholarship money) he received for the year. The 1099-Q correctly reflects the qualified educational benefits he received from the 529 Plan (from his grandparents) but list (in box 2) most of those distributions as earnings. The numbers on the 1098-T don't correspond at all and don't account for all of the money the VA via the post-9/11 GI Bill paid to the school for tuition and fees. After running the numbers TurboTax tells me my son (who has no income whatsoever) owes nearly $800 in taxes. Every penny from the 529 Plan and the post-9/11 GI Bill was used for qualified educational expenses and nearly every penny was paid directly to the college (only the book and housing allowance was paid to me, which we then paid the school). Anyone know why he owes this tax? Thanks.
