Q.1) Would I still be able to claim American Opportunity credit (AOC) as I have paid for this qualified expenses (housing, etc.,)?
A. 1). Yes, probably. Room and board are not qualified educational expenses (QEE) for the AOC. Tuition, fees, books and course materials (including a required computer) are qualified expenses. See "loop hole" below (separate reply) for how to claim AOC when most QEE are covered by scholarship. The fact that you didn't actually pay his QEE does not disqualify you. He just needs to have QEE.
Q. 2) Would any withdrawal from 529 be considered as additional earned income in this scenario?
A. 2) It is not earend income, but some of it could be (unearned) taxable income. Room and board (even off campus) are qualified expenses for a 529 withdrawal. See example in my 3rd reply about 529 distributions, in general.
Q. 3) I believe my son would have to file tax and pay income tax for the earned income of $17k, is this correct.?
A. 3). Yes. The general filing requirement for a dependent is $12,950 of income (2022). See 4th reply for the details about that subject.
