I realized that I made a mistake as the 529 owner when completing non- qualified scholarship withdrawals. I’ve read through all the other posts, but my question is about claiming the tax on the earnings.
I do NOT claim my student as a dependent on my tax return as they are over the age of 24, but we do provide all other living support outside of school expenses as they aren’t employed and go to graduate school full-time. I also do NOT claim any tuition expenses or education tax credits on my tax return (AGI doesn’t qualify to do so).
My student received GI bill assistance to pay for all tuition/fees/books and a room & board stipend. The student will have additional taxable scholarship income ($2500) separate from the GI Bill scholarships and MUST file a tax return for that income and because they also have 1099B earnings.
For various reasons, it was in our best interest to complete two, separate 529 non-qualified scholarship withdrawals and received 2-1099Qs, however one has my SSN and the other has my student’s even though both of the withdrawals paid to their bank account. The one with my student’s SSN is correct and I will file as necessary on their return w/1098-T calculations, however the one with my SSN has box 6 “recipient not the beneficiary” checked. After speaking with the 529 plan, I learned I mistakenly selected paid to owner, rather than beneficiary when one of the withdrawals was made and the form cannot be corrected.
Therefore:
1. Do I need to claim my 1099Q Box2 earnings ($3244) portion as income on my return and pay the associated tax, as I won’t have any education expenses to offset?
2. If I must claim, how do I prove that this was for a scholarship withdrawal and not be required to pay a 10% penalty? (I know my student has enough GI bill scholarships paid to cover the amount withdrawn, but they will claim their own 1099Q w/1098T on their own return).
3. How do I enter these earnings, while stepping through TurboTax questions? Is there a way to manually add and where?
Thank you!
