529 disbursement - where to enter 1099-Q data

[dawsondog]

I am using TurboTax for my 2021 tax return.  On our 2020 return our son qualified as a dependent because he was not working (only attending college).  In 2021 he worked part time so according to TurboTax, he no longer qualifies as a dependent for our taxes.

I received a 1099-Q form listing myself as the "recipient" since we paid his college tuition for 2021.  How do I enter this information on my taxes since the 1099-Q lists myself as the recipient?  All of the "gross distribution" went to cover his tuition. Just could not figure out where to enter the data from this form on my taxes.

Thanks!

[Hal_Al]

  You can just not report the 1099-Q, at all, if your student-beneficiary (dependent or not) has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution.* When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for your son to claim the tuition credit, if eligible.  You also cannot count expenses that were paid by tax free scholarships. The family cannot double dip! 

*On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 

If you insist on entering it, TurboTax (TT) can handle it.  After entering the1099-Q, you will be ask who the student is.  When you tell TT it's someone who is not your dependent, you get a simple screen to enter the expenses  (it's actually easier than when the student is your dependent).

[Hal_Al]

@dawsondog  said "In 2021 he worked part time so according to TurboTax, he no longer qualifies as a dependent for our taxes".

That's usually not true.  So you may want to go thru the interview again.

There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

[RobertB4444]

Your son can't be a dependent if his part time job means that he paid more than 50% of his own expenses.  I am surprised that he earned enough to support himself (well, better than half support himself) from his part time job.

If he supported himself then he gets the deduction for paying tuition on his tax return, even if you actually paid it.

If you supported him then you get the deduction for his tuition.  Regardless of who paid it.

If he supported himself you should give him the 1099-Q and the 1098-T from his university.

If you supported him you should go through the questions  again.  

[dawsondog]

Hi Hal_AI,

Thanks for the information and reply.  I left out some additional info as to why I thought he no longer qualifies as a dependent.  He is over the age of 19 and did not have enough units/classes last year to qualify as a full time student at college. 

He does meet item 2 and 3 you list below but does not meet item 1.  When I went through and answered the questions on TurboTax indicating such, that is when it indicated our son could no longer be considered a dependent. 

I will go back through these questions again tomorrow morning (after hopefully a good night sleep tonight) and pay closer attention to what TT asks and see if I may have missed something.  

Thanks everyone for the feedback!

[Hal_Al]

In that case, TT has gotten it correct.  Since he is over 18 and not a full time student, he cannot be a QC dependent.  So, now there is  an income test to see if he can be a Qualifying relative dependent.  If he had more than $4300 of income, he cannot be your dependent.