Reporting earnings on 1099-Q for dependent children

[Sanbhu]

Hello - earlier I had a question about reporting earnings (box 2) in 1099-Q for my "non-dependent" child (I'm the recipient) and am very thankful to @AmyC of TT for her insightful advice.

Now I have a question re reporting earning (Box 2) in 1099-Q for my "dependent" child (say, Joe). I'm the recipient but the money withdrawn was used for my dependent child's (Joe's) college education. Because I'm claiming this child (Joe) as a dependent, I'm reporting Box 1, Box 2, and Box 3 info from this particular 1099-Q in my tax filing under "Wages & Income." As you can guess, this results in raising my taxable income (and reduces refunds). Here's my question - am I doing my tax filing in TT correctly by reporting this 1099-Q earnings (Box 2) as a part of my gross income? Please note that all funds withdrawn are qualified expenses for this dependent child (Joe). 

Any help and advice is very much appreciated (particularly given the tax deadline is very close!) - thank you! Please let me know if any additional info or clarification needed. 

Best wishes,

-Sb

[AmyC]

Same answer! The Q should not be entered since it all went to education expenses. It could be allocated to room and board, or other expenses, if need be.

The 1098-T is only entered on the student return if income must be claimed from the scholarships. Otherwise, the T can go on the parent return and be allocated as needed for college education credit. The IRS has a great brochure that explains how scholarships and tax credits interact. Just be careful not to double dip. You can't claim 529 money for education credits- which is why we move what we can to room and board.

IRS Publication 970, Tax Benefits for Education states on page 45:  Don't report tax-free distributions (including qualifying rollovers) on your tax return.

[Sanbhu]

Dear Ms. Amy,

Thank you very much again for taking the time off from your work in this probably the busiest time of the year. 

I hope you'd not mind clarifying a follow-up question I have: TT asked me if I received a 1099-Q, which I did and selected "yes" for my dependent kid,  then followed the instructions in TT and reported those dollar figures in Boxes 1, 2, and 3 (as I mentioned earlier, that reporting increased my gross income and reduced refund). So, here's my follow up question - if I'm understanding your response correctly, I'll have to say "no" to the TT question on whether I received a 1099-Q form to avoid filling out those boxes as I don't see how do I avoid filling out those boxes when I say "yes" to that question! So, am I understanding your response correctly? If not, could you please elaborate a bit on what should I do re this particular 1099-Q (for the dependent child)? (Your advice on the "independent" child was great - thanks again!)

I just wanted to share the following because you mentioned 1098-T in your response: both kids got scholarship which covered their respective tuitions and their scholarships were reported in their respective tax filings (that didn't have any impact on their taxes or refunds except that TT said they were not qualified for those educational credits mentioned in TT and IRS lit you shared).

Thank you very much again for taking the time off from your very busy schedule to respond questions from "civilians" like me - really appreciated! 

Best wishes,

-Sanjib

[AmyC]

You are not required to report the Q when it is all used and you are telling the program which worksheets to use, not the IRS that you didn't get a form. So tell the computer no. The IRS already knows you got it because they did too. It is just the program that doesn't know.

[Sanbhu]

Dear Ms. Amy,

Thank you so much again! Will do and yes, all the 1099-Q withdrawals were spent on room and board, books, etc. (all qualified expenses). 

It may sound silly to you and many others but when I use TT (have been using it for many years), I always assume that I'm answering to the IRS, so I'm kind of afraid of making mistakes and just blindly follow whatever TT is saying/asking! Who wants to get a letter from the IRS, right? You may recall that I reported the 1099-Q Boxes 1, 2, and 3 for both kids in my 2021 and 2022 tax filing! (I'll follow your advice on the 2022 filing after I'm done with the 2023 - thank you again). 

Thank you very much again! Very much appreciate your advice. 

Best wishes,

-Sanjib