Education

Thank you for your detailed response! I am providing the following info for more specific help:

- I am the parent (married, filing jointly)

- the student is our dependent

- Box 1 of 1098-T = $18,843 (plus another small one for the same kid for $225, with no scholarship / Box 5 amount)

- Box 5 of the 1098-T = $8,500

- no other scholarships, besides the $8,500 shown in Box 5

- Box 5 is solely the school-given scholarship - was not factored in to the 529 withdrawal

- the $8,500 scholarship ($17,000 for the academic year) directly reduced the tuition we were charged

- Box 1 of the 1099-Q = $18,784 (ie: approx what we paid the school out of pocket, after the scholarship was deducted)

- Box 2 of the 1099-Q = $7,178

- parent's name and SS# are on the 1099-Q (parent is "recipient) - student's name and SS# are showing on the 1098-T from the school

- room and board paid is included in the $18k in Box 1 on the 1098-T (not sure if it should have been, but that is how the school issued the 1098-T and the 529 withdrawal was based on that)

- other qualified expenses not included in box 1 of the 1098-T: there would have been book expenses, but those were not calculated nor considered for the 529 withdrawal

- student had almost $4k of AGI (from part time jobs, W-2s), so taxable income of $0 after standard deduction - all education related expenses/credits/etc are on the parents' tax return; no education impacts were included on the child's/dependent's return (Maybe that needs to be changed?)

- tuition credits calculated by TurboTax are $1,314 American Opportunity Credit for this child, and $18 Lifetime Learning Credit for another child (= $1,332 total) - shows $523 in Refundable American Opportunity Credit and $809 in Nonrefundable Education Credits. TurboTax advised to play with amounts within a range to maximize the benefit (between taxable distribution amount and education credit) - the maximum in the range of $4,000 gave the best benefit (ie: highest tax refund)

- student is an undergrad

- student is a degree candidate attending school full time

So, my question pertains to the Other Income ("Qualified State Tuition Program from 1099-Q") of $4,668 that I am being taxed on Federally as well as by New York State - calculated as follows:

Total Expenses $19,068 = $18,843 + $225 per 1098-Ts

Used for credit    (4,000) - as explained above

Scholarship          (8,500) - which is the portion I don't understand - what we withdrew from the 529 is for                                                            expenses paid out of pocket after this scholarship had already been accounted                                                        for;  so why is it generating taxable other income if the scholarship is supposed to                                                    be "tax free"? - we withdrew $18.8k which is what the 1098-T shows were                                                                   "Payments Received"

                                 _______

Adjusted Qual-

ified Expenses    $6,568

Therefore, Excess Distributions are $18,784 - $6,568 = $12,216. 

Total distributed earnings from Form 1099-Q box 2 = $7,178

$6,568/$18,784 = 34.97%

$7,178 x 34.97% = $2,510

Earnings taxable to recipient = $4,668

If the $8,500 scholarship did not decrease Adjusted Qualified Expenses, the Earnings taxable to recipient would only be $1,420 (unless the $4,000 used for credit would change??).

Thank you again for your help!