SecondCor521
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Hi all,
I have a question that ultimately relates to line 2b of Form 8962 (APTC) for 2019.
My middle son graduated from high school in May, has a summer job, and will be attending college full time starting in August.
He will make approximately $3,780 in W-2 wages from his summer job. He will also have $1,083 in taxable scholarships related to college. We will also be making an excess withdrawal from his 529 to pay for his university health insurance in the amount of $1,724. The health insurance is not a qualified educational expense, so it will be taxable as other income on Schedule 1 line 21 (See Pub 970 chapter 8).
I plan to claim him as my dependent for 2019. He plans to file to get a refund of his federal income taxes withheld from his W-2 summer job. I would like to exclude his AGI of $6,587 (the total of the three numbers from the previous paragraph) from my Form 8962. Can I?
The instructions for Form 8962 line 2b say: "Enter on line 2b the combined modified AGI for your dependents who are required to file an income tax return because their income meets the income tax return filing threshold. Use Worksheet 1-2 to figure these dependents’ combined modified AGI. Do not include the modified AGI of dependents who are filing a tax return only to claim a refund of tax withheld or estimated tax."
Since I plan to claim him as a dependent, I go to the Form 1040 instructions for "Who must file?", Chart B on page 11. He is single, under 65, and not blind.
Clearly his earned income is his W-2 plus his taxable scholarship, or $3,780+$1,083 = $4,863. Is his 529 non-qualified withdrawal considered unearned income in this scenario even if it is not listed in the description at the beginning of Chart B ("In this chart, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.")?
What seems odd is that if we consider him not required to file due to not meeting the income thresholds, he will still file to get a refund of his federal taxes withheld from his W-2 job. But then he will end up with a taxable income of $1,374 which he'll end up owing taxes on:
Form 1040
1. W-2 $3,780
Scholarship $1,083
6. 529 NQ withdrawal $1,724
7. AGI $6,587
8. SD $5213 (calculated as $3,780+$1,083+$350 per standard deduction for dependents worksheet)
10. TI $1,374
So it would seem weird and wrong to say he's filing just for a refund when his return would show that he'll end up paying some taxes. So he doesn't seem to qualify according to the last sentence in the instructions for line 2b.
Alternatively, can I report that $1,724 excess withdrawal from his 529 on my tax return? It would be to reimburse me for his university health insurance, which I am paying for. It would increase my AGI, but not as much, because it would exclude his W-2 and scholarship from my Form 8962 amount.
Another thought would be to just make a non-qualified withdrawal of $1,049 from his 529 to partially offset the $1,724 expenditure. Then he would not be required to file per Chart B on page 11 of the 1040 instructions (except, of course, to get his refund).
Thanks for any suggestions, answers, clarifications, or input.
I have a question that ultimately relates to line 2b of Form 8962 (APTC) for 2019.
My middle son graduated from high school in May, has a summer job, and will be attending college full time starting in August.
He will make approximately $3,780 in W-2 wages from his summer job. He will also have $1,083 in taxable scholarships related to college. We will also be making an excess withdrawal from his 529 to pay for his university health insurance in the amount of $1,724. The health insurance is not a qualified educational expense, so it will be taxable as other income on Schedule 1 line 21 (See Pub 970 chapter 8).
I plan to claim him as my dependent for 2019. He plans to file to get a refund of his federal income taxes withheld from his W-2 summer job. I would like to exclude his AGI of $6,587 (the total of the three numbers from the previous paragraph) from my Form 8962. Can I?
The instructions for Form 8962 line 2b say: "Enter on line 2b the combined modified AGI for your dependents who are required to file an income tax return because their income meets the income tax return filing threshold. Use Worksheet 1-2 to figure these dependents’ combined modified AGI. Do not include the modified AGI of dependents who are filing a tax return only to claim a refund of tax withheld or estimated tax."
Since I plan to claim him as a dependent, I go to the Form 1040 instructions for "Who must file?", Chart B on page 11. He is single, under 65, and not blind.
Clearly his earned income is his W-2 plus his taxable scholarship, or $3,780+$1,083 = $4,863. Is his 529 non-qualified withdrawal considered unearned income in this scenario even if it is not listed in the description at the beginning of Chart B ("In this chart, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.")?
What seems odd is that if we consider him not required to file due to not meeting the income thresholds, he will still file to get a refund of his federal taxes withheld from his W-2 job. But then he will end up with a taxable income of $1,374 which he'll end up owing taxes on:
Form 1040
1. W-2 $3,780
Scholarship $1,083
6. 529 NQ withdrawal $1,724
7. AGI $6,587
8. SD $5213 (calculated as $3,780+$1,083+$350 per standard deduction for dependents worksheet)
10. TI $1,374
So it would seem weird and wrong to say he's filing just for a refund when his return would show that he'll end up paying some taxes. So he doesn't seem to qualify according to the last sentence in the instructions for line 2b.
Alternatively, can I report that $1,724 excess withdrawal from his 529 on my tax return? It would be to reimburse me for his university health insurance, which I am paying for. It would increase my AGI, but not as much, because it would exclude his W-2 and scholarship from my Form 8962 amount.
Another thought would be to just make a non-qualified withdrawal of $1,049 from his 529 to partially offset the $1,724 expenditure. Then he would not be required to file per Chart B on page 11 of the 1040 instructions (except, of course, to get his refund).
Thanks for any suggestions, answers, clarifications, or input.
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