Hal_Al
Level 15

Education

Graduating in May usually means that 2020 was her 5th calendar year of college. There is a four time limit to claiming the American Opportunity Tax Credit (AOTC) on a student's education.  So, if you already claimed  4 AOTCs, she is prohibited from claiming it in 2020. She can claim the less generous (and non refundable) Lifetime Learning Credit (LLC).

Assuming you haven't claimed it 4 times, there's another issue: A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if she supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. She will be asked the earned income support question in the personal info interview.

Assuming that's not a problem, we need to know who was the "recipient" of the 1099-Q, you or her? That determines who's return the 1099-Q is entered on. Who's name and SS# are on the 1099-Q?

 

Here's an example of how it will work:

  $30835 in educational expenses(including room & board)

 -$10000 paid by tax free scholarship

   -$4000 used to claim the American Opportunity credit

 =$16835 Can be used against the 1099-Q (usually on the student’s return)

 

Box 1 of the 1099-Q is $20,835

Box 2 is $15,400

16,835/20,835 = 80.8% of the earnings are tax free; 19.2% are taxable

0.192 x 15,400 = $2956

You have $2956 of taxable income  to report .  None will be subject to the 10% non-qualified distribution penalty because the non qualified portion of distribution was used to claim a credit

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