We have a 529 plan which we have used to cover my son's college expenses. My husband is the recipient of the 1099-Q, and we paid the school after taking the funds out of the 529. My son has received a 1098-T, which included a $5000 scholarship in box 5. However, the money we withdrew from our 529 (box 1 of 1099-Q) is exactly equal to all of my son's college expenses. We did *not* account for his $5000 scholarship. If we claim both the 1099 and the 1098 on our tax return, we end up paying tax for the extra $5K scholarship, since it exceeds our educational expenses.
I have seen several TT posts regarding scholarships, and it sounds like we could have my son claim the 1098-T on his tax return instead? And then he is taxed for the scholarship at a lower rate (or not at all, if he makes less than a certain amount?)? Is something like this possible, and if so, how would we do that?
We do NOT qualify for any of the Education credits because our MAGI is over the limit. We are claiming him as a dependent currently, but maybe it's better if we do not claim him?
