1099-Q Question

[Colleen224]

I keep reading that if your 529 withdrawal was for a qualified expense (in this case for R&B) then you do not have to enter the 1099-Q on your taxes. When asked how to handle, it just says to leave off.  However, the question on Turbo Tax is did you receive a 1099-Q Yes or No.  Are you supposed to answer No that you did not receive a 1099-Q in order to leave it off?  Seems wrong to say no when I did but don't know how else to handle.  

[MinhT1]

You are correct.

You don't need to enter your 1099-Q if it is used for education expenses including room and board.

On form 1099-Q, instructions to the recipient read: "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.

You can say No to the question as TurboTax asks that question so that you can enter form 1099-Q. Your answer is not reported to the IRS.

[Colleen224]

Thank you very much!  Good to know the response is not reported!  Makes me feel better.  Did you mean to say then you can leave off the 1099-Q versus so you can enter it?  Just want to confirm.  I have a follow question up to this also.  My daughter received more scholarship than tuition on her 1098-T.  Therefore we do not qualify for the AOTC.  I believe she will have to file as she is over 14,600 with the extra scholarship money plus some income, by such a small amount.  I believe she will enter the 1098T on her taxes, is that correct?  Do I just delete her 1098-T for this year on my taxes even though entered prior years?  

[MinhT1]

TurboTax asks the question whether you have received a form 1099-Q so that the program can take you to the form entry page if you answer yes.

On your second question, if your daughter is otherwise eligible for the AOTC and you are not phased out of the AOTC by your income, you can reserve $4,000 of tuition to claim the AOTC on your tax return.

Your daughter will also enter the form 1098-T on her return. TurboTax will report as taxable income the excess of scholarship over tuition. The taxable amount will be reduced by any amount of books and supplies entered. It will be increased by the amount you have used to claim the AOTC. She will find a page asking for the amount used to claim the education credit. She would then enter $4,000.

The tax that she will pay on the $4,000 extra scholarship will be much less than the AOTC of $2,500 that you'll receive.

[Colleen224]

Thank you.  So in regards to my second question, not sure I can claim any of the AOTC.  I am not phased out but a bit confusing.  If I determine that I can claim a portion of the AOTC, do we both then claim the 1098-T on our taxes, or just her?  Was thinking the 1098-T had to be entered to claim AOTC.  When I just enter the 1098-T right now in my taxes it says it cannot be claimed, but we haven't done her taxes yet.  Do you need to do her taxes first and submit in order to show she is paying taxes on the extra scholarship?    Hope this makes sense.  

[MinhT1]

As she is your dependent, you only can claim the AOTC for her. She cannot claim it.

To be eligible for AOTC, the student must:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period* beginning in the tax year
• Not have completed the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

What are the income limits for the AOTC?

• To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).
• You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
• You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

If you cannot claim the AOTC, then she cannot claim it either, but she will have less taxable scholarship.

[Colleen224]

Thank you again.  Just verifying who puts the 1098-T on their taxes in our situation.  I understand that my daughter cannot claim the AOTC since she is a dependent and TT told her so, and it appears if we try to claim it, we won't get anything (received such message from TT).  Because of this I am wondering do I then delete the 1098-T input that is on our taxes since we won't qualify to receive the AOTC?  And secondly, she has to input the 1098-T, even though she won't qualify to receive  the AOTC because Box 5 is larger than Box 1 which she has to pay taxes on the difference.  Please confirm whether I have this right - that she has to put the 1098-T on her taxes, and then wondering whether we should delete the 1098-T form since we won't receive AOTC and she is putting on her taxes, or if we should also keep the 1098-T on ours even though she has it on hers.  

[KrisD15]

Form 1098-T is a tuition statement and really isn't "put/reported" on anyone's return, it is used to do calculations.

In TurboTax, it is suggested that the taxpayer that claims the student enters the forms (1099-Q, 1098-T) and lets the program decide the next step. 

If the distribution is taxable, the person that was issued the 1099-Q needs to claim the taxable portion.

If there is a credit, the taxpayer claiming the student gets the credit, if there is taxable scholarships, the program will tell the taxpayer claiming the student how much the student needs to claim. 

This is the procedure if you want the TurboTax program to do the math.

For the taxpayer that wants to do the math, only the relevant form(s) is entered. 

IN YOUR SITUATION, 

if the entire distribution was used for Room and Board, no reason to enter Form 1099-Q in any TurboTax program

if you are not eligible for an education credit (are you over the income level?) no reason to enter Form 1098-T in your TurboTax program

if the student received more in scholarships then what was paid in education expenses and needs to claim that excess as income, Form 1098-T can be entered into the student's program so the program can calculate the amount to claim 

OR 

the taxable amount (only) can be entered on the student's TurboTax program