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Grandparent opened a 529 for a granddaughter. This year granddaughter has received a 1098-T (started college). Granddaughter is claimed by parents. The 1099-Q form for the distributions was issued in the grandparent's name and social security number. I do the grandparent's tax return but not the parents.
Is there anything I have to report on grandparent's tax return regarding the distribution made in her social security number to show it is non-taxable to grandparent?
And do I tell her to send a copy of the 1099-Q to the parents because they must show that State plan payout against educational expenses on their returns?
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So you both say I enter the 1099-Q on grandparent's return and to use expenses against it on her return? Then make sure the parents when they file don't use those same expenses somehow? The parent's don't report the 1099-Q on their return at all, just do not take the expense? Grandparent can take other expenses like room and board, books against the 1099-Q income I am gathering here.
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Fill out the 1099Q worksheet, theres a button at the bottom to input the "Other Student Qualified Education Expenses" that the funds were used for.
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It is very likely grandparents will have taxable income if parents claim credit, depending on amount of qualified expenses paid and amount withdrawn on Q. As mentioned, you need to fill out the worksheets. That means you need to have your client get those qualifying expenses. Also, many schools are still having hissy fit about having to put an amount in Box 1, and are putting everything received in Box 1, even if it isn’t a qualifying expense. So you need to make sure some expenses, like room and board, aren’t being double counted since they don’t count for the 1098T but do for the Q.
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So you both say I enter the 1099-Q on grandparent's return and to use expenses against it on her return? Then make sure the parents when they file don't use those same expenses somehow? The parent's don't report the 1099-Q on their return at all, just do not take the expense? Grandparent can take other expenses like room and board, books against the 1099-Q income I am gathering here.
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Thank you both for your help!
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No, that is not what I am saying. Ideally, the parents and grandparents will have identical worksheets. The parents are going to use $4000 of TUITION to get AOTC. The grandparents fill out the worksheets, including the $4000 for tuition, then show $4000 used for the tax credit near bottom of worksheet.
So what is happening? Depending on amounts, grandparents will pay tax on the interest allocated to the $4000. If the amount on the Q exceeds qualifying expenses including the $4000, there will also be a penalty.
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I need to add that you have to make sure all the boxes are marked correctly. Grandparents do not qualify for AOTC.
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If the worksheets are filled out properly, it will show what is taxable and to whom.
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Thank you again. I know the grandparent is not eligible for the AOTC so I got completely off track trying to figure out how this is handled on her tax return. I haven't had to deal with this before now and research just confused me more.