1099Q. 1098T confusion continues

[confusedrf]

I just went through the first round of TurboTax for this year it seems every year it's a little different and how you and when you enter your 1098t 1099q stuff causes weird things to happen.

My daughter is 20 she's a junior she lives at home she commutes. Somehow some way TT suggested I did not need to enter 1099 q on my/wife tax return. Note though  we've always entered it and always got the AOC credit.

I  click skip Isaas TT suggested I could. I entered expenses ...somehow it prompted me for 1098-T information... I entered that. I also entered expenses for a summer she took it another school that I paid cash for.  I entered her books that I paid cash for. Somehow it brought me back to entering the 1099q so I answered that information as well. And in the end it said I qualified for the $2,500 AOC credit.

I figured that was okay since we got the credit  the last two  years.

However it says she will have taxable income when she files. I don't know what happened. I don't understand how there could be any taxable income so long as we did not distribute from our 529 plan more than what the college billed.

Any thoughts on this. I did not even start to do her taxes yet. Typically she has about $3,500 in income to report from a summer job and that's it. She did get pua this year but I'm not sure what that has to do with anything... Like I said her tax info has not been entered yet.

I don't know why this has to be so incredibly confusing. But I am once again stuck .....thoughts?

[MaryM428]

Your daughter's PUA is taxable income.  She may also owe taxes on any scholarship money in Box 5.  

Pandemic Unemployment Assistance (PUA) is a program that temporarily expands unemployment insurance (UI) eligibility to self-employed workers, freelancers, independent contractors, and part-time workers impacted by the coronavirus pandemic.

[confusedrf]

Yes I fully understand that her pua is taxable income however I have not entered anything for her anywhere yet

My question is more specifically how or why TurboTax believes somehow my distribution that was sent directly to the school would somehow be taxable for her. I mean the software hasn't even seen anything entered for her yet it's confusing. Further I don't see where distributions are greater than the amount of payments we made. And it awarded me the AOC full credit so I assume that can't be the case. And since I entered the q&t forms on my personal tax return I don't think I should be entering them on hers when I file for her.  I don't think I ever have before.

[AmyC]

1. You can get AOTC and your daughter have taxable scholarship income depending on how you marked your answers. Please look at another of my answers for help 
2. Some of the 529 can go towards food for her, not a taxable event, but can reduce the amount paid towards education expenses which then reduces the scholarship amount. See  my 529 example.
3. The 1098T only goes on your return since you are claiming your daughter and the AOTC. Any taxable income would go on her return. 

[confusedrf]

This is simply nuts.  I recall the horror of this from last year. My understanding was that if you could show $4,000 in expenses you'll get the entire AOC credit. My disbursement from the 529 plan was entirely for tuition. I pay cash for her books in fact I did pay cash for a summer course you took at a community college and the books there too. I'm going to check but I do not believe if I subtract from the payments the scholarships and then the distributions that I'm under $4,000 but maybe I am... this is where the loans came in last year loans counted as expensive I was told in these forms... I don't have loans this year however last year they told me when push comes to shove room and board from living at home can be counted as an expense. I mean I'm certainly saving money over paying for her to stay at school but between her gas and food and cranking the heat up in her room etc etc and still cost me quite a bit than if she didn't go to college was working a job and living in an apartment!

 This is far too complicated for the average person to do and I spoke with an accountant last year who is no help at all. 

I am simply trying to understand how entering this information on my tax form it's somehow knows that some of this is taxable income for her... what would cause that specifically.. I quite simply entered the information on t and the information on q and somehow it determines that that is somehow taxable. What circumstances would cause that when I start to do her tax form. it shouldn't be too hard to figure out there's only about four boxes filled in between the two forms!

Thanks for trying to help perhaps I'm just thick.

[KrisD15]

It is imperative to enter the 1099-Q FIRST before the 1098-T.

The TurboTax program Step-By-Step is set up that way. 

The reason is that the program will allocate 10,000 expenses (if available ) for a credit after the 1098-T is entered. 

If the 1099-Q has been enter first, that amount will be considered. If not, then not. 

If the 1099-Q is entered after, the program won't release that 10,000 unless the customer goes through the education interview all over again and then re-allocates the expenses. 

It is complicated because this is an area/credit where the IRS lets the Taxpayer manipulate expenses and aid to get the best refund of education costs. TurboTax tries to do that for you, but the order of the information inputted matters. 

[confusedrf]

I did not enter it first!  The software said I did not have to enter it so I skipped it. I did then enter 1098t and some expenses and then went back for the 1099q.

I will see if I can redo it...or perhaps just ignore the advise about my daughter and her tax obligation...that I guess is erroneous since I entered things out of order.

I do not recall even entering the Q/T on my daughter's return.

[AmyC]

Two things to address:

First, Yes, you have more expenses and did pay, you would get the AOTC. You believe it all went to tuition and you still paid books and summer out of pocket. You have to qualify for the AOTC. That was in the other post I linked you to earlier. The room and board would primarily be food since she is a commuter living at home.

Second: The one claiming the student, enters the 1098-T.

If your name is on the Q and you are claiming your daughter, then you get both forms on your return and she would have none on hers. If she has taxable scholarship income, then she enters it on her return. See Where do I enter scholarship income?

The 1099-Q can get messy. Please see Guide to IRS Form 1099-Q: Payments from Qualified Education Programs

[confusedrf]

Thanks for hanging in there with us Amy.

We reported our daughter as a dependent on our tax return the past two years. We've reported the Q and T forms on our tax return and got the credit the past two years and so far turbo's taxes giving it to us this year. 

 We have never reported any Q/T info on my daughters tax return. The only thing on there were the few thousand dollars she made working over the summer. She had about half as much last year due to covid but she has quite a bit of p u a money that may change the game for her a little bit. Pua being Pennsylvania's special unemployment insurance during  covid.

As far as taxable scholarships all her  scholarships are  reported on the T form. Is it taxable or not I don't know... I assume TurboTax figures all that out.

Hopefully I am good to go I simply entering the Q and T on my return. I must click your links and take a look and see some of the other stuff you're pointing me to though.

[AmyC]

Perfect! You win the lottery for the T and Q on your return. Yes, the program is figuring out if there is any taxable income and will make you aware that she has taxable income. It doesn't do any more though since the program is working on your return.

Your daughter will have more income with the PUA.

Glad we could all help!

[confusedrf]

But if the t/q is not entered on her return...how will it know if she has taxable income on it. Should it be entered on both mine and hers?

I redid mine today...well sort of...I could not figure out how to fully remove the t/q info. I wanted to see if entering the Q first makes a difference...as some have stated.  But even tho I deleted raw data...summary stuff I could not delete remained...and it still said she would have $1800 in taxable income.

I will start her return tommorow.

[KathrynG3]

1. Regarding Form 1098-T and Form 1099-Q: No, it should only be reported once. Dependents cannot claim education credits. If she is not your dependent, then no Form 1098-T information should be added to your return. 

Form 1099-Q is reportable by whose social security number is on the form. 

2. Deleting Form 1098-T and Form 1099-Q: Try another place to delete the form so the program fully updates.

Try going to the left menu and following these steps to delete a form:

• From the left menu, select Tax Tools.
• Select Tools.
• Scroll to Delete a Form.
  • Scroll to Form 1099-Q and select Delete and Delete Selected Form and Continue.
  • Scroll to Form 1098-T and select Delete and Delete Selected Form and Continue.

Before continuing, close the program and close the browser completely. Re-open using Chrome. Be sure to then enter Form 1099-Q first in the Education section under All tax breaks. 

For more information, see: 

Who can I claim as my dependent?

Where do I enter a 1099-Q? and Where do I enter Form 1098-T?

Guide to IRS Form 1099-Q: Payments from Qualified Education Programs - TurboTax Tax Tips & Videos

[confusedrf]

Bottom line, please confirm:

1)

My daughter is a FT college student and my dependent.

We received both the T and Q form in my 'daughter's' name.

I entered the Q and T for for her on MY return.  

I entered some other stuff, a course taken at the community college, books etc that I paid cash for.

I was awarded the AOC credit.

2)

I am now  filing my daughter's return.

I SHOULD NOT enter the Q / T form on her return at all.

Her return will consist of the income from her part time job and Pennsylvania PUA insurance she received during the shut down.
Thats it!

3)

All this started with TT predicting she'd have taxable income ...before I even entered her return.

This may be because I di not enter her Q info FIRST.

I can use you instructions above to delete and redo that if desired....and then may not get that warning.

It is  perhaps unnecessary though.

THANKS!!!!

PS

I hope that wraps this issue up...then I just must figure if her PUA insurance income should indeed be taxed at such a hight rate...thats another post I made!!!

3)

[AmyC]

Following up, making sure you are able to enter her taxable scholarship income. See Where do I enter scholarship income?

Children's unearned income can be taxed at the parent's rate. Earned income is taxed at their rate. The laws changed between 2019 and 2020. There is a lookback available that may be helpful. The final version is not yet released, see 2020 Publication 929 - Internal Revenue Service:

Dec 8, 2020 — Part 1 of this publication explains the filing requirements and other tax information for individuals who can be claimed as a dependent on another person's tax return. Part 2 explains how to report and figure the tax on un- earned income of certain children (whether or not they can be claimed as dependents).

[confusedrf]

Hello again Amy!  I get that and it did ask our line 15 taxable wages...which I assume it somehow used to calc a tax rate to apply to her total income.

However, on my tax form, it shows my 'effective rate'.

I assume it applies some other sort of rate to her income?  My 'effective rate is no where near 25% and that's what it says she owes in total... maybe right...just trying to understand what rate its using.   I know TT used to show my 'tax rate' (I do not recall what they called it)  and an 'effective rate'. Maybe my 'tax rate' is indeed close to 25%...does that ring a bell...is that what they use? This year I only see my 'effective rate...if that should be used it is not!