Q. I read somewhere that the MET can ONLY be applied to tuition. Is that not correct?
A. I'm not specifically familiar with "MET". My reply refers to the rules for all "529 Plans". If MET is a 529 plan, limiting distributions, to tuition, would be highly unusual. You'll have to check with them.
Q. The $500 that was "left over" after the MET and Scholarship was applied, was used partially for books and the remainder ($350) he deposited into his bank account. As I understand it, this would be considered income?
A. Yes but not exactly. Don't go by "left over". Allocate expenses to either the tuition credit, the 529 distribution or scholarship. Then any scholarship amount not covered by expenses is taxable income.
Q. Since he does not meet the threshold of $12,550 or other items requiring him to file, he does NOT have to file a tax return. Can you please confirm if this is accurate?
A. Correct, if the taxable amount of scholarship + his wage income is less than $12,550. He does not need to file.
Q. I'm still REALLY confused about the 1099-Q and 1099-T. Since my son does not have to file, how does the 1099-Q get recorded? Do we have to include in our return (parent's return) along with the 1099-T? Reading through your previous email, it sounds like we have to record the the 1099-Q on our 1040 since technically not ALL the funds were covered by expenses. He had $350 that was deposited in his bank account. We would then use the 1099-T as the credit on our 1040. Is this correct?
A. It depends on the numbers and who is the "recipient". As stated previously, 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." Theoretically, TurboTax does this for you. Just not always very well. You need to have some idea of the expected output.
Provide the following info for more specific help:
- Are you the student or parent.
- Is the student the parent's dependent.
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529/ESA plan payments (it should not)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q
- Box 2 of the 1098-Q
- Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
- Room & board paid. If student lives off campus, what is school's R&B charge.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- How much taxable income does the student have, from what sources
- Are you trying to claim the tuition credit (are you eligible)?
- Is the student an undergrad or grad student?
