529s and 1099-Q and 1098-T Forms—Who Reports?

[LT1219]

My daughter is a first-year college student and we used funds from a 529 plan to help pay for college this past fall.  Our daughter also received scholarship funds that were listed on her 1098-T.  We are the owners of the 529 plan and she is the beneficiary; therefore, her name is on the 1098-T and 1099-Q.

I use Turbo Tax and it has never steered me wrong in the past; however, I’m having the hardest time figuring out how to report the qualified education expenses/529.  We claim her as a dependent on our taxes but she also files her own return, as she has other income.  Who enters the education expenses? It asks if we are the beneficiary of a 529 plan in the deductions and credits section, but since we are not the beneficiary and she is, what do we do? Does she get the tax credit, or do we?  My understanding was that this 529 was not taxable and that since she is our dependent, we should claim the deduction/credit. But how do we do that? Also, it asks to list education expenses. Does this include the 529 distribution (which went directly to the college and never came to us)?  Her tuition for 2021 was paid with a combination of her scholarships and the 529. We did not make personal payments.  The amount she received in scholarships is also listed on the 1098-T. Is this something we claim, or does she? How about room and board? It asks that we list it in the expenses section but I didn’t think that was deductible.  I read something about the student needing to claim some or any of the funds received as income.  Is this true?

It’s all so confusing and several calls to Turbo Tax have all resulted in different answers. I’d really appreciate it if anyone could help!

[DaveF1006]

529 withdrawals are tax-free to the extent your child (or other account beneficiary) incurs qualified education expenses (QHEE) during the year. Since you daughter is the beneficiary, she would report his on her tax return and state the the distributions were for qualified educational expenses.

According to the IRS, you may claim the education credit if all three conditions apply.

1. You, your dependent or a third party pays qualified education expenses for higher education.
2. An eligible student must be enrolled at an eligible educational institution.
3. The eligible student is yourself, your spouse or a dependent you list on your tax return.

It sounds like from what you have mentioned so far, you qualify for the credit.  The big issue at this point is if the scholarships exceed expenses. If so, there is taxable income if scholarships exceed the educational expenses. if this is the case, then room and board can be used as an expense to lessen the taxable income.  This is the only instance where you can report room and board as an expense. 

Hope this helps.

@LT1219

[LT1219]

Thank you for this information!  So, if I’m understanding this correctly, my daughter should enter the 1099-Q on her return, and we should enter the 1098-T on ours?  

The scholarship amount is less than the amount in Box 1, so we should be good there.  

[JillS56]

No, you do not want to enter the 1099-Q on your daughter's return unless it was not used for qualified education expenses.   You cannot enter the 1099-Q on your return if your daughter is the beneficiary and the 1099-Q contains her social security number and name.  Because she cannot report the 1098-T on her return, if she reports the 1099-Q on her return, TurboTax will treat the 1099-Q as income.   If there are sufficient qualified educational expenses to cover the distribution from the 529 plan, then do not report the 1099-Q.   

 The 1099-Q is one form that does not need to be reported unless it is not used for qualified educational expenses.   

Since your daughter is dependent on your return, you can claim the 1098-T on your return.   Keep in mind that an education credit can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits.  

[LT1219]

Thank you!!