Can i include 1098 T and 1099 Q on my son's tax return?

[dvn2]

Our family received a 1098-T under my son name and he is the one in college and we are paying for his college tuition. We also received a 1099-Q under my name.
I am filing income tax for my son (single status) and us (me and my wife as join status). 
Next year I will try to have the 529 money send to my son's school instead of our account so the1099-Q will have his name on it and everything will be file on his return.
Here are questions for this year tax return:
1. How do we correctly file these forms on our returns (my son return  and my return) this year?
2. I believe there is a income limitation for claiming the tuition credit and our income is over that so I can include those forms on my son return only for this year even though 1099Q is under my name and 1098-T is under his name. This way the tuition credit is more advantageous for him instead of us ? 

[MayaD]

The 1099-Q gets reported on the recipient's return. If the form has your name and Social Security number you will report the form on your return. The 1098-T should also go on your return. 

Your son has to report form 1098-T if he has taxable scholarship in box 5.

If the Education expenses were covered by the withdrawal you don't need to report forms 1099Q and 1098-T on your return. 

[dvn2]

So next year if both forms 1099Q and 1098T have his name on them and I don't claim him as my dependent can he benefit from the education credit on his return?

[RaifH]

It does not matter whose name is on the form to determine whether or not your son is your dependent. Even if you do not elect to claim him on your return, he would still have to mark on his return that he is eligible to be claimed as a dependent if he meets the definition of a dependent. 

For the purposes of determining dependency, going to college is considered a temporary absence and he is still considered to be living with you. The deciding factor for children attending school aged 19-24 is usually whether or not they provide more than half their own support. If your son is paying his own rent and buying his own food and other necessities then you would not claim him as your dependent. If he is not, then he is still your dependent.

All that being said, there is a special rule regarding the American Opportunity Tax Credit. If your son is eligible to be claimed by you but is not claimed by anyone, then he can take the American Opportunity Credit on his own return. For more information, see IRS Publication 970. The American Opportunity Credit provides up to a $2,500 credit, $1,000 of which is refundable even if he has no taxable income.

To do this, you could not include him on your own return. In addition to not being able to claim that education credit which it sounds like you are not eligible for, it also means you would not be able to claim the credit for other dependents. 

[dvn2]

I am a little confused so let me ask you a novice question and I hope you don't mine.

Our son made around $13000 last year (2021). What would be the most advantages for us in term of filing our income tax returns?  2 separate returns (1 for us and 1 for my son)?  He is between sophomore and junior year of college, lived at home with us, drives back and forth to a nearby college  (15 minutes drive) and we paid everything for him. Thank you in advance for being patience with me.

You said "If your son is eligible to be claimed by you but is not claimed by anyone, then he can take the American Opportunity Credit on his own return."  How does he do this using Turbo Tax?  Does he need to include the 1099Q and/or 1098T in this return?

[RaifH]

If your income does not allow you to take the education credit for your son, but he would otherwise qualify for the American Opportunity Credit, it is probably most beneficial for your family not to claim him. 

As I said, he would still have to mark on his tax return that he is eligible to be claimed as a dependent. You would do this on the My Info screen of his tax return in the left-hand menu. Select Edit by his name and answer Yes to Someone else can claim me as a dependent on their tax return and No to And this person will claim me on their 2021 tax return.

In this case, Form 1098-T will be reported on his tax return. Form 1099-Q will be reported on your return since you are the recipient. To report Form 1099-Q on your return:

1. Enter the 1099-Q in Federal > Deductions & Credits > Education > ESA and 529 qualified tuition programs. Begin by selecting yourself as the recipient and someone else not listed here as the student. You can add your son as the student.
2. Make sure that a distribution code is selected only if one is on your form. Leave it blank if there is not one. 
3. Answer the questions on the Death or Disability, Distribution Transfer, and Refund of Education Expenses screens.
4. After you return to Form 1099-Q Summary screen, hit Done. On What level of school did you attend in 2021? enter the correct one. 
5. You may now enter the non-dependent's student expenses.

And that's where it can get tricky. In order to maximize the American Opportunity Credit, your son needs to have paid at least $4,000 of qualified expenses out-of-pocket or with loans. That means the 1099-Q can't be used to pay for $4,000 of his tuition. It can be used towards any of the other expenses listed, but if you do not have enough expenses for the entire distribution then a portion of the remainder will be taxable income to you. 

For example, say your son's tuition was $15,000 and you took out $20,000 to pay the tuition and other expenses and used it in its entirety. You would only enter $11,000 for tuition and enrollment fees and the other $5,000 in the correct category. The other $4,000 of the 1099-Q would be reported as income. The earnings portion of that would be taxable on your return.

One qualifying expense that people use is for room and board. Since your son lived at home with you, if he was a full-time student, you can still include room and board as an expense paid by the education savings account withdrawal. The expense is the amount that the school determines to be qualified room and board costs. This may reduce the amount of your withdrawal that would be taxable.

Your son would then be able to maximize the American Opportunity Credit because there was $4,000 that was not paid with the education savings account withdrawal. At that point, his tax refund should be however much federal income tax was withheld from his job plus an additional $1,000 that is the refundable portion of the American Opportunity Credit.