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Level 1

1098-T and 1099-Q

I'm having a problem understanding the 1098-T and 1099-Q for my daughters tax return.


Her 1098-T

Box 1 $51,955

Box 5 $58,493

Difference $6,538

So I assume she will be paying Taxes on the difference between Box 1 & Box 5


On her 529 Plan we took out the whole amount in August for the entire school year. I realize now that the school year covers 2020 & 2021. So I think I have to report the whole amount on her 2020 tax return.

So on her 1099-Q it shows the following:


Box 1 $8,348 Gross distribution

Box 2 $4,345 Earnings

Box 3 $4002 Basis


She lived in the dorms part of the year and then was sent home in March and received a $950 credit for dorm room. Then in the fall of 2020 she rented a house with 3 other girls and paid $650 a month for rent and about $400 a month on food. I think those 2 items will qualify as an expense reduce her taxable amount on the 1099-Q. Please let me know if I'm correct on the Rent and Food helping to reduce her taxes.


I think she needs to report both of these on her Tax Return. As I am divorced, her mom claims hers as a dependent on her return but does not Qualify for the AOTC, I think because of the 1098-T is showing more in Box 5 than in Box 1.


Is there any way to reduce the amount of taxes my daughter will owe. Thanks for any help anyone can provide on entering the 1098-T and 1099-Q.





US NAVY Veteran

2 Replies
Level 15

1098-T and 1099-Q

Yes, room and board (R&B) are qualified expenses for  a 529 plan (1099-Q) distribution. If R&B, plus books and computers, for the year,  add up to more than $8348, just ignore the 1099-Q. None of the $4345 earnings is taxable (the taxable amount of the distribution is 0).

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.


"Her mom claims her as a dependent on her return but does not Qualify for the AOTC, I think because of the 1098-T is showing more in Box 5 than in Box 1.'

Yes, but there is a tax “loophole” available. The student reports all his/her scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using your numbers as an example: Student has $58,493 in box 5 of the 1098-T and $51,955 in box 1. At first glance she has $6538 of taxable income and nobody can claim the American opportunity credit. But if she reports $10,538 as income on her return, the parent can claim $4000 of qualified expenses on their return. If the student's total income is less than $12,400, she will owe no tax. Mom should claim the AOTC. It's more valuable than the tiny amount of tax the student will pay.


If the student does not have enough R&B and other expenses to totally cover the 1099-Q, rather than calculating tax on the 1099-Q, simply increase the amount of taxable scholarship. Example: student's R&B, books and computers add up to $7348. Rather than trying to calculate the amount of tax due on the $1000 unqualified distribution, say it went to $1000 of  tuition  (rather than that $1000 being paid by scholarship) and increase the taxable scholarship to $11,538.   In addition to saving the hassle of entering/calculating the taxable 1099-Q, the scholarship is not considered unearned income.  You risk triggering the "kiddie tax" by reporting part of the 1099-Q as income.



US Army Veteran


Level 15

1098-T and 1099-Q

Qualified Tuition Plans  (QTP 529 Plans) Distributions (Generic response)

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit,  that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.


Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q. 
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (usually on the student’s return)


Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)


**Alternatively; 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 still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, 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, in case of an IRS inquiry.

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." 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

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