Q. Since we will not get any credits by claiming him as a dependent, does it matter whether we claim him or don't claim him?
A. No. If your income is above $180K, you don't get the AOTC. If it's above $400K, you don't get the ODC.
Q. If we do NOT claim him, can our son get any refundable (education) credit at all?
A. No. Congress specifically wrote the law to prevent that (ineligible parents tying to switch the refundable credit to the kid). Furthermore, a student who is not actually claimed as a dependent, must still check the box, on form 1040, that says he CAN be claimed as a dependent.
Q.( If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. ) I'm assuming he will not have a tax liability, because he would not owe any taxes, correct?
A. Correct
Q. When my son files his tax return, he reports his 1098-T (but he can/should leave the box 1 blank, since we paid that amount with the 529 and are claiming the 1099-Q to be tax free?
A. Yes. Entering it that way is a short cut.
Q. Because his total income is below $13,850, he will NOT be taxed on any of his income (including scholarship), and he should be able to get a refund of his federal income tax that was withheld?
A. Yes. The answer might be different if he had any unearned income (e.g. interest, dividends. capital gains, taxable 529).
Q. In the future, if his income goes above the $13,850, he will need to pay a "kiddie tax" on the excess amount over that limit?
A. Yes, if his income is earned income (wages) and taxable scholarship*. The $13,850 could be a lower amount, if he has unearned income, e.g. interest, dividends. capital gains, taxable 529). If his income is mostly wages, then the $13,850 would be higher. If his income is all wages (no scholarship) then the kiddie tax doesn't apply at all.
*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400). It is not earned income for the kiddie tax and other purposes.
