I believe 1098T’s are issued by the university and are always in the student’s name. I entered the information on both my child’s return and my return. I did that because Turbotax told me to do that in the Q and A. I really prefer to look at the forms in the form view and make sure I understand what Turbotax is doing with it and that I agree with what they are doing with it.
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Yeah, i’ve not done mine yet - I know the one that is the distribution to me i’ll fill in.
First you get creamed on the tax and then later it rebates. it’s scary.
I trust but don’t trust turbo tax. When TN had a state income tax, they did it wrong. But the form was so easy i did it by hand. TTX was way far off.
It’s putting a lot of trust into something that I don’t really know if it’s right.
It depends. 1098-T information is entered on Form 8863 (Education Credits) and filed by the taxpayer claiming an education tax credit. That could be the student to whom the 1098-T was issued, or a parent.
Here’s my view on Turbotax - When you go to an accountant, you typically have one set of eyes reviewing your returns. I recently had a relative ask me about a return done by a local accountant where the accountant was not familiar with backdoor Roth IRAs. On the other hand, Turbotax has a team of lawyers scrutinized by all their users. They sometimes have software bugs, but being in that field, I can understand how that can happen with a new version coming out every year with lots of modifications.
As for the 1098T’s, only one person will use it to claim a tax credit, but Turbotax understands that and does ask the questions to insure that.
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Wait. You can do that? I thought withdrawals needed to be in the year that the expenses were paid or when the scholarship was awarded?
There are two separate parts here:
- In the year you graduate, if you earn enough to provide 50% of support (so you are exempt from kiddie tax), you can at least withdraw the amount corresponding to the amount of the scholarship in the last semester of college without penalty or kiddie tax.
- The IRS has not definitively ruled on whether the penalty applies to withdrawals which are not in the same tax year as when the scholarship money was received. You may choose to interpret the rules as allowing a withdrawal in a later tax year without paying the penalty (ie after your kid is no longer in full time education), at your own risk.
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and… if by some miracle your kid get sufficient merit and financial aid in their own name, they will be providing >50% of their support and will no longer be subject to kiddie tax. Though with merit that high their tax brackets won’t be the bottom rung.
But I thought that merit and need=based aid was tax free. So how does that bump them into a higher tax bracket?
if they take a 529 deduction in the amount of merit (and its a large amount) that deduction is taxable income and could bump up their bracket.
Thanks.
So my understanding is:
- a 529 distribution that is equal or less to the amount actually paid is not taxable
- If a student receives merit aid, additional 529 distribution can be taken up to the amount of the merit aid, but that amount is reported on the 1040
- The same is true for need-based aid
Can you confirm the above??
Also, can you confirm if #3 is true (our situation) and, if true, is there a choice as to whether the student or the parent reports the distribution?
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I know nothing about need based aid. I believe 1 and 2 to be true. D did just that was was taxed at our 40% tax bracket. Sucked.
As for #3 I am guessing that whoever is the recipient of the need based aid would be the one who reports any 529 distribution taken. This must not happen often as people with overfunded 529s don’t get a ton of need based aid.
Thanks!
@BelknapPoint can you confirm #3 above? I would be very appreciative!
There are so many unknowns on 529s. Some say you can only take same year. Others say til year you graduate.
I’ve talked to the IRS. They don’t know.
No matter what you do, I’m convinced it will just happen. That’s an issue that there would be no recourse but no one really seems to know the rules and that includes the IRS.
Talk about something needing to be simplified.
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Merit and need based aid used for QEE is not taxable. My daughter had aid used for room and board and that was taxed to her, not at a kiddie tax rate. Now with the standard deduction being $12k+ per year, I think most students wouldn’t owe that much (depending on other income)
529 funds can be used for room and board and not taxed. That’s why Florida schools apply pre-paid tuition/room first (if the student has both FPP and other scholarships/grants) and then refunds things like grants, Bright Futures because those will then be taxed to the student.
Be careful with combining all the funds. My daughter’s school (private) would NOT refund merit or grants from certain sources, mostly their own funds and BF (BF allows the schools to decide, and this school would not refund BF), so all her school merit and grants, and BF had to be applied first, then another grant she had could ONLY be used for tuition, so that was applied early in the list too. Things like Pell grants could be refunded so those were applied last.
This is not accurate. Financial aid isn’t counted in the support calculation. You need to compare their actual earnings (eg summer job) with their support from you (health insurance, imputed rent for time spent at home, other incidentals including pocket money, phone etc). They are likely to need to earn several thousand dollars, and much more if they are at home in the summer, to provide >50% of their own support and avoid kiddie tax.
If they get a huge merit scholarship then that should be more than the parent-funded expenses you refer to, and get the kid out of kiddie tax land. My kids all earn several thousand dollars a year working part-time.
I am sure I am wrong about financial aid though-- we don’t have any, so no experience there.
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That’s not correct. As I said, scholarships and financial aid are not counted as financial support in determining the 50% threshold. The kid has to earn the money elsewhere.
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but if the parent isn’t paying for tuition, room, and board (due to merit) then it’s pretty easy for the student to claim the >50% self-support though earned income.
The 529 scholarship/grant exemption to the 10% additional tax (penalty) makes no differentiation between merit aid and need-based aid.
Thank you!
Do you know if there is flexibility as to whether the student or the parent reports it on their 1040?
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