First time filing - what do I need to include?

[hchan32]

Found out I made ineligible 2020 Roth contributions when I didn't have any earned income. So in February of 2021, I requested Vanguard to remove my excess plus earnings. I don't have any other substantial income besides around $60 in interest and dividends, so the 10% penalty on my earnings is my only tax liability. I can just file Form 5329 by itself, correct?

I was a full-time resident of NY, so would I also have to file a NY state return since I'm required to file Form 5329 federally?

I also received Form 1098-T showing scholarships > expenses. Do I report this? I've gotten responses on my other discussion telling me that I do not include it in my own personal return since I will be claimed by my parents.

[ThomasM125]

If you made the contribution in 2020 for 2020 and removed it by the due date of your tax return (April 15, 2021) then you wouldn't be treated as having made the contribution so there wouldn't be any penalties.

Your parents would claim the form 1098-T on their tax return to see if they qualify for an education credit, unless the scholarship income on it was more than the education expenses, in which case you would report it on your tax return, as it may be taxable income to you.

[hchan32]

@ThomasM125 

Thank you for your response. I think there may have been some miscommunication.

• I made the contribution in 2020
• I removed the contribution plus earnings in February 2021 (before the April 15th filing due date)
• I made around $275 in earnings, and will therefore be taxed 10% as an early withdrawal penalty because I am under age 59 1/2
• Form 5329 will need to be filed to report the additional tax
• I have a Form 1098-T showing scholarships/grants > qualified expenses by around $6k
• Do I report the excess scholarships/grants as income?
• My Form 1098-Ts from prior years also showed scholarships/grants > qualified expenses by around $4k, but my parent's tax preparer did not report or file anything
• I am confused because the excess scholarships/grants were not reported in prior years, so will I need to report it?

[DaveF1006]

Yes, if your prior year's 1098-T show an excess scholarship amounts (Box 5 is greater than Box1) on the 1098-T, you will need to prepare amendments for each of those years to report the prior year's excess scholarship amounts. This is income that was unreported. 

[hchan32]

@DaveF1006 

So my parent's tax preparer erroneously did not file anything for my 1098-T even though a return should have been filed for it?

I made another discussion post inquiring about how to report 1098-T, and was informed that a return does not have to be filed if W-2s and 1098-T excess scholarships do not exceed $6200. Is this also incorrect?

@RayW7 wrote:

If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.

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[KrisD15]

IT DEPENDS ON HOW MUCH INCOME THE 1098-T GENERATES. 

If the amount of income the 1098-T generates, plus your other income, is under the filing requirement, you would not have needed to file for that tax year and you do not need to amend UNLESS you have additional tax to report. 

"Beginning in 2018, a minor who may be claimed as a dependent has to file a return once their income exceeds their standard deduction. For tax year 2020 this is the greater of $1,100 or the amount of earned income plus $350.  (UP TO 12,400)

TurboTax explains filing requirements for dependents

[hchan32]

@KrisD15 

Yes, my total income from all sources is less than the filing requirement for my status. I only have additional tax due to my withdrawal of Roth earnings. Can I file Form 5329 on its own?

[KrisD15]

Yes, you can file just Form 5329.

It cannot be electronical filed. 

TurboTax will require you file a 1040 as well, and will require an upgrade from TurboTax free.

You could print the form and prepare it by hand, in which case you would mail just that form to the IRS. 

According to the IRS:

"If you don’t have to file a 2020 income tax return, complete and file Form 5329 by itself at the time and place you would be required to file Form 1040, 1040-SR, or 1040-NR. If you file Form 5329 by itself, then it can’t be filed electronically. Be sure to include your address on page 1 of the form and your signature and the date on page 2 of the form. Enclose, but don’t attach, a check or money order payable to "United States Treasury" for any taxes due. Write your social security number and "2020 Form 5329" on the check. For information on other payment options, including credit or debit card payments, see the Instructions for Forms 1040 and 1040-SR or the Instructions for Form 1040-NR, or go to IRS.gov."

IRS Info on Form 5329

FORM 5329

You might also try IRS FreeFile if that would be easier and not require an up-charge. 

IRS FreeFile

Remember that you still have time to withdraw those contributions to avoid the penalty tax  

AND you NEED to withdraw the contributions eventually since you will be penalized every year going forward until you finally remove the funds.