Q. If there is a way for my daughter to get a credit for her education expenses even though she did not provide more than half her support?
A. No. It would be highly unusual for an 18-19 year old freshman to qualify*.
Q. So after all is said and done, it appears to me that no education expenses or scholarships need to be reported on either her return or our return. Is that correct?
A. Yes.
Q. And she won't pay taxes on the little earned income she had for the year. Is that correct?
A. Yes, if her earned income was less than $13,850. In fact, she is not required to file a tax return and would only do so if there was withholding in boxes 2 and/or 17 of her W-2 that she wants refunded.
You say what the 529 earnings (box 2 of the 1099-Q) were ($3106.71). But, you don't say what the distribution was (box1). That's the number that needs to be less than the $9,813.61Total expenses she can use to exclude 529 earnings.
*While, technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out. A student, under age 24, is only eligible for the refundable portion (the $1000 you saw) of the American Opportunity Credit (AOTC) if he/she supports himself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support. It is usually best if the parent claims that credit.
If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500 (AOTC shifts to all non refundable)
