I received a 1098-T from the college and 1099-Q from the 529 plan for education expenses for Fall 2019, Winter & Spring 2020 payments (all made in 2019). My daughter withdrew from the college for Spring semester (in Feb 2020) and the college issued a refund check at the end of Feb to cover all expenses paid. I submitted payment back to the 529 plan to cover the disbursement for the semester. The 2 tax forms are for payments made in 2019 and do not include the refund. How do I account for this? When doing taxes, it asks if she received a refund. Do I answer NO? She did get a refund after the forms were issued and the funds were placed back in the 529 Plan. This will probably be an issue for most college students in 2020 with refunds due to COVID. I am also confused about filing a tax return for her. I am paying for all expenses that are not covered by 529, we have no loans and I am putting the info in my tax return but the 1099-Q is issued in her name.
Since the 1099-Q was issued to your daughter, she will be the one to report it on her own tax return.
it asks if she received a refund. Do I answer NO?
You answer YES. Then select the option on a later screen to indicate the refunded amount was returned to the 529 account. That will cancel out the taxability of the returned distribution amount.
"This will probably be an issue for most college students in 2020 with refunds due to COVID."
See this thread:
The most recent comment says:
My college refunded tuition paid with 529 Plan funds. What do I do?
May 01, 2020 : H&R Block
In most cases, if your college issues a refund for a qualified expense, you have 60 days to reinvest the money back into your 529 account. Right now, you might be counting the days since your college issued the refund to see if your 60-day window has passed. Luckily, recent IRS guidance gives you some additional time to recontribute the refunded amount back to your account.
With the IRS announcement, you have the following options:
- Redeposit the refunded amount by July 15, 2020, or 60-days after the refund was issued, whichever date is later.
- Apply the funds to other qualified expenses later this year. Be sure to spend it on expenses for the fall semester as the funds need to be used by December 31, 2020.
For one daughter I had submitted her taxes prior to the COVID - send the kids home from college and issue the kids a credit. I have returned the amount back to the 529 plan. But I didn't include the amount on the 1099- Q on her taxes because I thought I was supposed to list it on my taxes because I was trying to reduce my taxes with education expenses. Now I believe tax forms have been revised to include any refunds. Do I need to amend her tax and what documentation do I use if the amount taken out of the 529 plan (with the refund now sent back) is not the value on the 1099-Q form? What value do I enter since the plan is not issuing a new 1099-Q or will this all be adjusted for 2020 forms?
The 1098-T and the 1099-Q are only informational documents. The numbers on them are not required to be entered onto your tax return. You claim the tuition credit, or 529 plan earnings exclusion, based on your own financial records*.
Whether you need to amend her return, depends on whether the changes affect her bottom line. If you put the refunded amount back in the 529 account, you most likely do not need to amend.
*On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You cannot double dip! When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.