2022 return, questions on filing as non-dependent with scholarships, 529 distribution

[john clay]

I am trying to file LATE, and am running out of time---getting close to the Oct 31 deadline for submitting the return already started with turbotax.  I didn't submit on Oct 16th because I didn't think figures had been properly entered. I wasn't getting the AOTC credit, and was owing over $800 in taxes.  I don't think that is correct. I have read well over 100 posts regarding how to enter excess scholarship and 529 info, but am more confused than ever!!! I am trying to claim AOTC, which in my case will require making some scholarship/grant taxable income...  I think. My scholarships/grants exceed tuition/fees by $6901, which was refunded to me by college.  $5022.50 was total paid to the college, ALL from financial assistance (I have 2 grants and 3 scholarships). From what I can determine, $4,303 is the qualified expense, leaving about $719 unqualified fees. Unfortunately, my 1098-T is not showing any of that $4303 paid in box 1---only shows $719.50.  Box 5 is $11,923.50, which IS the total of all scholarships/grants.  The school will not amend the 1098-T box 1 amount, which they explain somehow occurred due to the 529 distribution ---says that is just how their computer handles it, and they won't change it.  But at least I do know precisely how much was paid to school in 2022---$5022.50!  That 529 distribution ( prepaid tuition plan)  was sent directly to the school, but all $4302 was refunded to me instead of being applied to tuition/fees. It is SUPPOSED to be used only for tuition/fees in order to not be taxable. So, I am guessing I somehow have to report the earnings portion somewhere as taxable income as well.  No idea how to deal with all these figures in turbotax! Here are figures from the 1099-Q--- Box 1 $4302.00 (distrib.),   Box 2 $2086.68 (earnings),  Box 3 $2,215.32 (basis).  

***I know it is not the normal situation, but I DO NOT qualify as a dependent on anyone's return for 2022.  I earned from my job $11,054.79, of which I spent more than half of on my expenses.  I also received $12,846 in social security survivors benefits, ALL of which is considered as being  spent for my expenses.  My surviving parent is not working, and not required to file a return with less than $100 of taxable income for 2022.  So, as far as I can determine, because social security payments paid to a child, used for their expenses, ARE considered used for their own support.

Therefore, I am not a dependent.

Unfortunately, almost all posts I have read discuss handling excess scholarships, 529 distributions, and claiming AOTC with the parent also filing and entering some info on their return, and the parent claiming the AOTC.  So, I cannot figure out how to file based on that info.

*** CAN ANYONE HELP ME????***PLEASE!!??**** THANK YOU to anyone who read all that, and responds!

[NCperson]

@john clay how old are you?

and did you complete the worksheet on page 16 to determine support? what was the result? 

https://www.irs.gov/pub/irs-pdf/p501.pdf

@Hal_Al 

[john clay]

Age 18 at the end of 2022.

I did the worksheet on p. 18 as best as was possible.  I assumed I was answering questions about MYSELF, and not trying to determine if someone else qualified as my dependent. I was confused about exactly how much to enter in #1 because of "income received both taxable and nontaxable" due to my both taxable and nontaxable  scholarships.   I included education expenses for both private school tuition and college tuition/fees.  Then added up all other expenses of mine for the year.  I admit I had to guesstimate on some of it, but overestimated in those cases. I had to use fair rent value (which included utilities) because I live at home with my parent and commute.  I wasn't sure if I should have been using the college room/board from their COA, at least for the fall semester (my 1st semester as freshman). The total expense figure I came up with is $21,408.   Social security income was $12,846. It was spent. Work income  ($11,054.79 tot.) that I SPENT on my support was about $6952.43.---So 19,798.43 spent on expenses. Again, that includes college tuition, which I don't know if it was supposed to!  I did not include 529 distribution in income. $10,704 would have been half of my support from my calculations. Is that correct? 

And thank you SO much for responding!  YOU are exactly who I wanted to talk to after reading so many of your posts!

[john clay]

I entered that wrong.  Total expenses approx $21,408.  I spent approx $19,798.43 of own money on support.

[NCperson]

@john clay why do you beleive you are eligible for AOTC?  your scholarships exceed you Qualified Educational Expenses. 

[john clay]

Honestly, I don't know if I am eligible or not.  But I thought from reading so many posts that some of the scholarship could be added to income, becoming taxable, thereby making me eligible for the AOTC.

[john clay]

Thank you so much for your help! You don't have to spend any MORE of your valuable time on this though, because we (Mom and I) have just found some replies from last week, where we had asked questions about this tax return---sure wish we had seen the replies earlier.  I would not want to waste your time! There are instructions given on how to deal with the 1099-Q, and other issues that were asked about. Thanks again

[NCperson]

@john clay yes, some of it can be added to income; however, if the scholarships are restricted to tuition, etc, then the expenses need to be netted against the scholarship and then there is not much left to be added to income.

how do you know if the scholarships are restricted? ask your financial aid or bursur's office.  I can tell you that Pell Grants are unstricted, should you have one of those. 

[john clay]

I was aware that the Pell ($3448) was unrestricted, but wasn't sure about the Mississippi HELP grant ($ 4303).  I have just found an answer about that one----may be used for tuition, required fees, and average cost of university housing. Thanks for continued assistance!!!

[john clay]

Sorry, but I don't understand what "the expenses need to be netted against the scholarship" means.

[NCperson]

@john clay 

you have scholarship income - that is taxable to you.

You have Qualified Educational Expenses (QEE) - that CAN BE used to reduce the scholarship income dollar for dollar.  Youi don't have to unless the scholarship is "restricted"

Example:

Scholarship income: $3,000

QEE: $4,000 

I can just report $1,000 of net QEE (and no scholarship income) and get the AOTC scholarship based on the $1,000. 

but I have the option to break them out separately and report the $3000 of scholarship income (and pay the tax on that income as appropriate) and then report $4000 of QEE, which gets me a larger AOTC tax credit (in most cases). 

That is totally permitted - with an exception. 

If the scholarship is restricted in its use, then the scholarship must be netted against the QEE ("the expenses"). 

Let's say that my scholarships were two separate scholarships: one was for $2,000 and was restricted in its use solely for tuition.  The other one was unrestricted and I could use it as I pleased. 

Therefore, I have to net the $2,000 restricted scholarship against the $4000 of QEE, leaving me with $2,000 of QEE and scholarships of $1,000.

Since this last $1,000 is an unrestricted scholarship, I can report the $1,000 as income and use $2,000 of QEE to claim the AOTC tax credit.   The result is my AOTC tax credit is limited compared to circumstances where the scholarship is unrestricted. 

it's complicated. 

on  the MS HELP scholarship - that 'sounds' unrestricted, because you state it "may be used"; you didn't state it MUST BE used for tuition. 

[john clay]

According to finaid.olemiss.edu, the Mississippi HELP grant is "... a grant covering the cost of tuition (including required fees)  and the average cost of campus housing". That is all I have to go on thus far in researching it, but can confirm with my school tomorrow.  So I am fairly certain the Pell ($3448) and HELP ($4303) grants are unrestricted.  As for the rest of it, and exactly what to do with all the information, my brain is about to explode!  I think I have looked at this tax stuff for toooo long, and now nothing seems to make sense, ha. Thanks for sticking with me and TRYING to help me understand it all!!! 

[john clay]

And BLESS YOU for replying on a SUNDAY EVENING!!!! Much appreciated!

[john clay]

I am just going to keep re-reading the info and examples you included until my brain understands it, and then try to figure out to APPLY that to the situation!

[NCperson]

@john clay HELP is a restricuted scolarship 

https://www.msfinancialaid.org/wp-content/uploads/2023/08/APA_Part615_HELP_April2023_Text_FINAL.pdf

page 5: 

Payment of HELP awards shall be disbursed directly to the educational institutions and applied first to tuition and required fees.