I claim my son as a dependent on my tax return and he is a full time student as well as is a recipient of 1099-Q form. When I tried to file his tax return, I found out that TurboTax calculates a tax liability for him even though the 1099-Q distribution amount ($57,000) is less than the qualified education expenses ($61,000) reported in 1098-T form. Looks like it is happening because of a decomposition of 1099-Q Gross Distributions ($57,000) into Earnings ($14,000) and Basis ($43,000) So, it seems like it is not enough for Gross Distributions to be equal or less to 1098-T Expenses to calculate no tax liability which does not make much sense to me. Can anybody please help me understand why and how the split between Earnings and Basis in 1099-Q impacts the tax calculation?
