Lifetime Learning Credit

[Christian]

A single woman who was 23 yoa last year continues living at home with her parents. She earns some $30,000 or so working in law enforcement at a local town and continues her education by pursuing a masters degree. Her tuition expenses are covered by a payment from a 529 plan set up by her father years back. Due to her income I would be reluctant to have her file as a dependent of her dad even though living at home. She wants to know if she can file for the Lifetime Learning Credit even though her tuition is covered by the payment from the still existing 529 plan. She is shown on the 1098-T as a graduate student with the halftime box checked. I really do not see how she qualifies but it would not be the first time being wrong. Does she qualify?

[Lion EA]

Unless she's a full-time student, she would not be a dependent.

If the 529 Plan distributions cover her tuition and expenses, then she has nothing left to use for the Lifetime Learning Credit. If she wants to make her 529 distributions taxable and pay her tuition with her own funds, then she can take the LLC. Off the top of my head, I don't know which would be most beneficial to her, but your could run the numbers both ways to find out. Research "coordination of education benefits."

[Christian]

Let me clarify. Box 8 of her 1098-T indicates " Check if at least a half time student". Clearly a full time employee cannot be a full time student. I'll check into the reference you provided. I think I can locate it in Pub 970.

[grandmabee]

16 minutes ago, Christian said:

Let me clarify. Box 8 of her 1098-T indicates " Check if at least a half time student". Clearly a full time employee cannot be a full time student. I'll check into the reference you provided. I think I can locate it in Pub 970.

I think it only takes 12 credits per term to be considered full time student.  So yes you can also have a full time job.

[jklcpa]

As Lion said, in general it is possible to pay tax on the 529 distribution and then it *may* be possible to claim education expenses if all other tests are met.

In Christian's client's case, running a support test calculation is needed to determine whether the 23-year-old is a dependent of the parents.  The parents would have to spend or provide support in excess of whatever the student provided on her own, including whatever portion of the $30K in earnings she spent plus (I think) the amount spent on the tuition from the 529 plan.

I haven't researched this, but I seem to recall that even though the 529 funds may have come from the parents or someone other than the student, the contribution into the plan is considered a completed gift to the student. If that is the case then, and because the 1099Q is issued in the student's name, and the student would have to report any taxable portion, then the tuition paid for by those 529 funds would be considered funds paid by the student toward her own support.

It may be a moot point though if there is no tax benefit if the student is not a dependent of the parents and if the education costs were all paid by 529 funds and the choice is made to not include those distributions as taxable income.

[Max W]

4 hours ago, grandmabee said:

I think it only takes 12 credits per term to be considered full time student.  So yes you can also have a full time job.

It depends on the school.  For grad students,  it can be 9, or lower.

[Christian]

I finally decided to do nothing. At her income level dad surely can no longer consider her as a dependent. If she wants to pursue it she can I do not feel comfortable handling it. The courses are all online no room and board . All costs are tuition and supplies. Last thing I need is a kickback from the Service over an iffy issue.