Q. TurboTax (TT) will only add these two forms (1099-Q & 1098-T)if the child is listed as a dependent in the profile area, now I'm not clear how to proceed?
A. It's actually easier in TT, in this situation. The 1099-Q interview will ask who is the student. Answer someone not listed here. Enter the student's name when asked. A few screens later, you'll get one simple screen to enter expenses. You do not have to deal with the complicated “Educational expenses and Scholarships” (1098-T) section later.
Better yet, you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board 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 you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You 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."
Q. Part of that requirement for residency is that we as her parents can't claim her as a dependent on our prior year taxes (2022). Can we do that?
A. Yes & no. Your are not required to claim your dependent. But, there is a rule that says IF somebody else CAN claim him/her as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12,950), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section. TT will check that box on form 1040. She is not "independent".
Q. Our daughter will be required to file taxes based on several months of auxiliary social security income?
A. I'm not familiar with the term "auxiliary" social security income. But the general rule is SS income is neither taxable or reportable unless the person has sufficient other income. SSI (supplemental security income) is not reportable.
Q. Should she add the 1099-Q to her own return?
A. No. The 1099-Q is in the parent's name (the parent is the "recipient").
Q. Should she add the 1098-T to her own return?
A. No. The 1098-T is only an informational document. The numbers on it are not required to be entered onto your (or her) tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. If you know neither to be true, don't enter it. Students, under 24, are not eligible for the refundable credit. If she has no tax liability, to offset, then the non refundable credit will do her no good.
