If I do not want to include my son as dependent (he files his own tax return) but I am the recipient in the 1098-Q and the entire distribution amount (basis and earnings) was spent on my son's qualified higher education expenses.
If you qualify to claim your son as your dependent, then you have a choice to actually claim him or not. But your son does not have a choice. The key word is *qualify*. If you *qualify* to claim your son, then your son does not have a choice and must select the option on his tax return to indicate that "I can be claimed on someone else's tax return". It does not matter if you actually claim him or not.
For the 1099-Q, the person who's SSN appears in the "Recipient's TIN box will report it on their tax return. If that's you (the parent) and you do not claim your son as your dependent, the 100% of the 1099-Q distribution is taxable income to you the parent.
So, my question is: Where do I specify that the distribution was indeed for qualified expenses and hence should not be taxed?
If the distribution was to you, and you are not claiming your son as your dependent, then it's not a qualified distribution. It's fully taxable to you.
I suspect that you incorrectly believe that you don't qualify to claim your son as your dependent, when you do. Take note of the below and what it does "not" say or specify.
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First, who claims the student as a dependent?
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited institution and:
Is enrolled as a full time student for any one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:
the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)
Then:
The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”. To reiterate:
If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.
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Take note that the student can only provide more than 50% of their own support two possible ways.
- The student was self-employed or had a W-2 job and earned sufficient income to justify a claim to providing mroe than half of their own support. The student's "EARNED" income would also have to be more than the total of all third party support (scholarships, grants, 529 distributions, gifts from Aunt Mary, money from parents, etc.) Third party income *does* *not* *count* for the student providing their own support.
- The student is the *primary* borrower on a *qualified* student loan, and sufficient funds were distributed to the student during the tax year to justify a claim of providing more than half of their own support. The amount distributed also has to be more than the total of all third party income received by the student in the same tax year.
Also note that there is no income limits. The student could earn a million dollars (literally!) and still qualify as your dependent. The student's earnings do not matter.
