1099Q and 1098T

[Shirley79]

My client has a dependent in college but can't use any of the 1098-T tuition or other fees because their income is too high.  Can the college student use the 1098-T expenses on her tax if she is being claimed on her parent's return?

Also the student received a 1099 Q which had a distribution of $6000 and earnings of $1600.  All the distribution was used for tuition, but the software is showing tax for the earnings.  Is there a way to make the earnings non-taxable?

[TaxGuyBill]

I'll answer the first part - If the parent's actually claim the child, no, the student can not claim an educational credit.  If the parents' choose not to actually claim the child, yes, the student can claim the educational credit (be sure to still indicate that they CAN be claimed as a dependent, but are not actually being claimed), BUT will NOT qualify for the Refundable portion of the American Opportunity Credit.  So it would only be used to offset income tax.

As for the 1099-Q, it can be a struggle to figure out out to fill things out in the software to make it behave.  Are you entering it on the parents' return or the student's return?  What software are you using?

[Shirley79]

I'm entering the 1099Q on the student's return.  The earnings from the 529 plan are causing $174 tax where she would have no tax without it.  I read places that say not to even file the 1099Q if the earnings were used for education, but I don't want IRS coming after her.

I am using Pro Series Basic.     

Thanks for clarifying my first question.

[TaxGuyBill]

Have you entered any tuition on the return?  The program will treat it as taxable unless you enter tuition.   But as I said, I'm not very 'fluent' on 1099-Qs, so it takes some tinkering to get it to work right.

[Shirley79]

I entered her 1098 T on her return and the program says she's not qualified to use tuition since her parents are claiming her.  It is definitely better for her parents to claim her, though.

[TaxGuyBill · Accepted solution]

I tinkered with it for a bit, and I think if you go to the "Student Information Worksheet" (don't enter the 1098-T), scroll WAY down to Part VIII and enter tuition in lines 2h.

[Shirley79]

That worked!!  No more tax.  I'm going to do that.  Thank you so much for your time and help.

[IRonMaN]

As long as they spent the money on college expenses, don't bother entering the 1099Q on the return.  It's one of those screwy things that don't really show up anywhere unless they are tripping income.

[TaxGuyBill]

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@IRonMaN wrote:

As long as they spent the money on college expenses, don't bother entering the 1099Q on the return.  It's one of those screwy things that don't really show up anywhere unless they are tripping income.

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That's no fun.  😂 

I keep forgetting that.  It is so rare that I get a 1099-Q that I can never remember what to do with it.  But I guess they are going to be more common now that Minnesota has had the 529 credit for a few years.

[IRonMaN]

Yeah, the Minnesota 529 contributions are getting to be more common with my clients.