This is our first year with a child in college for the fall 2018 semester. We have a tuition waiver benefit from my DH being a staff member at the school my DS will attend. DS also got a small amount of scholarship that they will apply to room and board. We will still have about $10k in R&B per year, and we plan to pay for the those costs as well as any books/supplies from our 529 funds. As I understand it, R&B is an allowable QHEE that you can use 529 funds on. I will have those funds disbursed either to the school directly or to my DS (the beneficiary) directly. We will keep good records.
In addition, DS will have a job this summer. I don’t know how much he will make from it. Probably around $4000.
We will not qualify for any education credits based on our MAGI.
I believe we will still be able to claim DS as a dependent. He will not be living at home. He will be living on campus in another state.
Do we still claim him as a dependent? Do the 529 funds we use for R&B count as supporting him for more than 50% of the time?
Also: I assume he still files his own tax return and includes his summer income as well as the R&B scholarship on that return? Or do the parents claim the R&B scholarship?
Are there any other tax forms or issues to be aware of based on the facts above? I am assuming I will still get a 1098-T even though we have a tuition waiver – and I have heard that the amount on that form doesn’t always match what you paid out.
I also assume the 1099-Q from the 529 will be given to my DS and he would report that on his return since the funds were disbursed to him. Is that correct?
First time with all of this, so I have a lot of questions. Thanks for any insights. Really appreciate it.
Probably, I would think. New for tax year 2018, there are no longer exemptions that decrease taxable income, but dependents who don’t qualify for the child tax credit will still provide a $500 credit for the taxpayer reporting the dependent on the tax return. A taxpayer not claimed as a dependent on another return cannot claim this credit for himself.
The dependency support test is based on dollars, not time. If the 529 account is not owned by your son, expenditures from the 529 account are not him supporting himself.
Yes, these amounts would be reported on his own tax return. But, the new standard deduction for single filers in 2018 is up to $12,000 (depends on amount on earned and unearned income); your son may not have any taxable income in 2018 because of this much higher standard deduction.
The scholarship is attributable to the person who received it. That’s your son, not one or both of his parents.
For me, the wild care here is the tuition waiver. I’m not up to speed on the taxability of this benefit, so make sure you know how the IRS expects it to be treated.
The school may be excused from filing a 1098-T because tuition will be paid with the waiver. But really, the purpose of the 1098-T is to assist with claiming education tax credits, and if your AGI (not to mention a complete lack of available qualified expenses) precludes you from taking any of these credits, the point is moot.
Yes, if the 529 distributions are made to your son and/or the school, the 1099-Q will go to him with his SSN on it. But, if all of the 529 distributions are used for qualified expenses (and are therefore 100% not taxable), there will be nothing to report on anyone’s tax return.
Keep records of all expenditures, bills, payments, etc., just in case of future audit. Easier to complie it as you go along vs. try to reconstruct it 4 or more years down the road.
This is news to me so I hope it’s ok that I ask my own question on your post! My D received at $30,000 merit scholarship. Will she end up having to pay taxes on that?? We will be paying the remaining $40k out of our savings and taking on some debt. Can educational expenses be written off and if so, should we gift her money to spend? Clearly I need to talk to an accountant but any help is MUCH appreciated before we start spending anything!
Here’s what I found about the taxability of tuition remission/waiver. I took this from NYU’s site. Seems like they ought to know.
In general, you do not have to pay income tax on Tuition Remission benefits for undergraduate degree programs for yourself, your spouse and your dependent children (age 23 or younger as of the end of the calendar year).
Because the IRS does not recognize the tax exemption of benefits extended to domestic partners, all Tuition Remission for registered domestic partners and their dependent children is considered taxable.
Under IRS regulations, up to $5,250 per year of graduate Tuition Remission benefits for employees are non-taxable. This means the first $5,250 of your graduate tuition costs will not be taxed. Anything over $5,250 will be considered taxable income, and the tax on the value of the benefit will be withheld from your paycheck. If the graduate level course work is job-related, it will be excluded from taxable income.
Under IRS regulations, any graduate-level Tuition Remission benefits for a spouse/ registered domestic partner, or dependent children are fully taxable.
So, it looks like the tuition waiver for undergrad is not taxed. For grad, the first $5250 is tax-free and the rest is reported as income and taxed, I assume.
Any scholarships or grants received in the tax year (not school year), can be offset with tuition, fees, book expenses (QEE=qualified education expenses) paid during the same year.
Anything over that is taxable income to the student.
If parents file married filing jointly and have MAGI of up to $180,000 (I think), they might be able to claim an American Opportunity Tax Credit of up to $2,500 a year for four years of undergraduate education.
Since your tuition waiver will have to be applied to tuition, only fees and books will be left to claim for AOTC.
All other scholarships and grants will be taxable, as they will pay for room and board and other nonqualified expenses.
You might want to calculate if you qualify for AOTC and how much, and either claim it, or let daughter deduct the cost of fees and books from her taxable scholarship income.
