$13,481Tuition & Fees
+ 2030 Books etc
= 15,511 Qualified educ expenses (QEE)
- 10,750 Paid by scholarship
= 4,761 QEE Available for 1099-Q
+ 3833 Room & Board
= 8594 Total expenses avail for 1099-Q.
- 9171 529 distribution shown on 1099-Q
= $ 577 Non qualified portion of 529 distribution. This is not the taxable amount. The taxable amount is 577/9171 = 6.3% of the box 2 amount
With a little searching you should be able to come up with another $577 of food costs. In which case, do not enter either the 1099-Q or any educational expenses on your tax return. It's not required.
Worst case, the student reports $577 of taxable scholarship on his return. The first $12,400 of taxable scholarship is not taxed. Technically he doesn't even need to file. Some tax advisers say file anyway just to document that he reported it.
Even if your numbers change, the answer is going to be the same: you report nothing; your son reports taxable scholarship, in the amount, to make up the shortfall.
Other issues:
1. If you get a refund, you are required to return it to the 529 plan within 60 days to keep it tax free. Alternatively, you can just spent it later, in the same calendar year (not academic year) for expenses, including food
2. The new issue is that money was sent from the 529 to the college in December (shows up in 1099Q), but the college did not receive and process it until January. First, try to avoid this in the future. To be qualified the money must be spent in the same calendar year as the distribution. If questioned by the IRS (unlikely), you can probably successfully argue that you meet the intent of the rules . Unfortunately this is a common problem. But, I have not heard of of anyone having an actual IRS dunning over it.
