What tax issues should I prepare for?

BelknapPoint
Sat, 31 Mar 2018 00:13:57 +0000

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?

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.

Do the 529 funds we use for R&B count as supporting him for more than 50% of the time?

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.

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?

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.

Or do the parents claim the R&B scholarship?

The scholarship is attributable to the person who received it. That’s your son, not one or both of his parents.

Are there any other tax forms or issues to be aware of based on the facts above?

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.

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.

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.

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?

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.