@rrich68 said: So far, I put the 1098-T information onto my tax return including books and computer expenses and
received education credit.
That means you used all the tuition, books and computer expenses to claim the credit. That means the $1695 tuition has been used and isn't available to be covered by tax free scholarship. The $2740 scholarship is now all taxable income, to the student. Your said: on my son's return I'm only showing his (W-2 + 1099-Q) - Room/Board ? You need to add the scholarship income.
Room & Board (R&B) are the only expenses available for the 1099-Q. $6964 / 8304 = 83.9% of the earnings are tax free. 16.1% is taxable. 0.161 x 4829 = $779 taxable income from the 1099-Q.
Theoretically, TurboTax (TT) will come to that conclusion. It will also generate form 5329 to claim the penalty exception (the parent claimed the tuition credit). Usually some of the income would be subject to the "kiddie tax", wherein a small portion of the income is taxed at the parent's tax rate. Form 8615 may be generated. But, it appears your amount is too low to generate that.
On the student's return, enter the 1099-Q first. Then e
nter the 1098-T, exactly as received. Enter book and computer expenses and room & board separately. When asked if any of the scholarship was used for room & board, answer yes and enter the $2740. This is necessary to make it taxable and will not distract from Room & board being used for the 1099-Q. In his interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is the same amount you used on your return (tuition + books & computer) . That will put all his scholarship as income on his return.
Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s interview. Check the student information work sheet (part VI, line 17) to verify it was entered. If not, the alternate workaround is to enter 0 in box 1, when you enter the 1098-T. In that case don't enter book & computer expenses. Do enter R&B.
When you're done; the $1695 scholarship will be added to wages on line 1 of form 1040, with the notation SCH1695 to the left of line 1. The $779 will be on line 8 of form 1040 from line 8z of Schedule 1.
None of the wages or scholarship will get taxed (it's under $12, 550 total). A small portion of the 1099-Q earning will get taxed. Your $32 refund could be right, if there was withholding on the W-2.
