If a 529 plan is supposed to be not taxed on qualified education expense, why does my tax refund/due change when I enter the values of the 1098 & 1099-Q

[FangxiaL]

Check to see if the amount in Box 5 is greater than that in Box 1 on your 1098-T form. If that is the case, you might have taxable income. Add more qualified educational expenses in TurboTax, it should reduce the taxable portion of earnings from the 529 plan (Box 2 amount on Form1099-Q). 

Here is a list of qualified educational expenses for 529 plan purposes:

• Qualified expenses are amounts paid for:
• Tuition, fees, books, supplies, and equipment required for enrollment or attendance of the designated beneficiary at an eligible institution.
• Room & board for students enrolled at least half-time in a degree or certificate program. Expenses are limited to the room and board allowance included in the cost of attendance set by the school for financial aid purposes or the actual cost of campus housing, if greater.
• Expenses for special needs services of a beneficiary with special needs incurred in connection with enrollment or attendance.
• The purchase of computer or peripheral equipment, computer software, or internet access and related services. These items must be primarily used by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. The computer software must have a predominantly educational nature.
• For QTPs only, expenses paid for fees, books, supplies, and equipment required for participation in a registered apprenticeship program.
• For QTPs only, student loan repayments of principal or interest on any qualified education loan of the beneficiary, or beneficiary’s sibling, up to a cumulative maximum of $10,000 per beneficiary and sibling.

[Paul770]

Box 5 is only about 60% of box 1. 

Are scholarships/grants taxable?  

Would it have made more sense to have by student be the recipient of the qualified distribution of the account that we are the owners of?

[FangxiaL]

scholarships/grants are tax-free if used to pay for tuition.

If you make direct payments to college or university without taking withdrawal first, your dependent is deemed the recipient. In that case, you don't need to enter the 1099-Q form on your tax return. 

Check to see if you qualify for the American Opportunity Tax Credit:

1. Open or continue with your return
2. Click on Show more next to Education under Deductions & Credits section
3. Click on Start or Revisit next to Expenses and Scholarship (Form 1098-T)
4. Answer questions on the screens that follow.