Hi - trying to wrap things up but getting tangled around this 529 silliness. Here is the situation:
- 529 plan withdrawls are summarized accurately on the 1099-Q
- the last withdrawl was on 12/20/19 for the Spring 2020 semester payment
- the college did not recognize the payment until early January 2020
- the college did not include the Spring 2020 payment in the 2019 1098-T
- 1099-Q and 1098-T numbers do not match
Please suggest how I should account for this while filing. TurboTax is indicating that the excess withdrawls are taxable.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. You claim the tuition credit, or report scholarship income, or claim the 529 plan earnings exclusion, based on your own financial records, not the 1098-T.
The money was sent to the school in 2019. It counts as a 2019 payment for purposes of the 529 plan 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 still 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.
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."
thanks for the quick response. a couple of follow-ups for your consideration:
- the 2019 529 distributions all went directly to the college and paid the full educational expenses for 2019 and Spring 2020
- does that mean i should include Spring 2020 expenses when I enter the expenses according to my records (which would match with the 1099-Q info)?
- does that mean that TurboTax will enter nothing about the 1099-Q in the tax forms?
Also... about the American Opportunity Credit
- I am thinking to NOT claim my son as a dependent anymore (he is essentially >50% on his own support)
- based on his lower income should he qualify for the credit?
Q, does that mean i should include Spring 2020 expenses when I enter the expenses according to my records
A. Yes, if you are claiming the 529 plan earnings exclusion (1099-Q).
Q. does that mean that TurboTax will enter nothing about the 1099-Q in the tax forms?
A. Yes. You don't need to enter the 1099-Q, at all. But if you do, it goes on you son's return, not yours (your son is the "recipient" since the money went directly to the school).
Q. based on my son's lower income should he qualify for the American Opportunity Credit (AOC)?
A. Simple answer: No. But, it's complicated. If he is not your dependent, he does qualify for the non-refundable portion (up to $1500, not $2500) of the AOC. So, he would have to have some tax liability to get any benefit.
A full time, unmarried student, under age 24, is only eligible for the refundable portion (up to $1000) of the American Opportunity Credit if he supports himself by working (earned income). You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants. It is usually best if the parent claims that credit.
Q. I am thinking to NOT claim my son as a dependent anymore (he is essentially >50% on his own support)
A. It's unlikely that he provides more than half his own support if he's paying for college with a 529 plan. The treatment of expenses paid with distributions from Sec. 529 plans and Coverdell ESAs in the support test is uncertain because of the dual nature of these college savings vehicles and a lack of IRS guidance. The consensus among tax experts is that it is parental support, because the parent is the owner of the plan. It would be helpful to your case it the student is the "recipient" rather than the parent.
The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
Even if you son qualifies as your dependent, you are allowed to forego claiming him (and the $500 other dependent credit) to allow him to claim the non-refundable portion of the AOC.
thanks again for the great input. here are some example numbers which may help:
- son earned income $20k
- lived at school and then rented apartment
- education expenses paid fully by 529 plan distributions
- 1099-Q $30k ($10k/semester = 2019 Spring + Fall, 2020 Spring)
- 1098-T box 1 $25k, box 5 $5k (= net $20k tuit / year)
- should he file independently?
- should he enter 1099-Q (2019 and part 2020)?
- should he enter tuition expense 1098-T info (2019 only) or enter 1099-Q numbers?
- should he claim the tuition credit?
Or... your best suggestion based on the info above.
It depends on what " lived at school and then rented apartment" means. Being away at school, even living off campus, is considered only a temporary absence from the parent's home. For tax purposes, he still lives with the parent. However, if he moved out permanently and did so before 7/2/19, then he did not live with the parent, for more than half the year and cannot be a qualifying child dependent. The $20K earned income disqualifies him from being a standard ("qualifying relative") dependent (there is no income limit for a qualifying child). So, he can file independently.
He can claim the tuition credit, but as earlier explained may not get the refundable portion.
He probably does not need to enter the 1099-Q at all if he has enough other expenses ( room and board and books & computers) to cover the $30K on the 1099-Q. Students living off campus can claim the lower of actual rent & food cost or the school's R&B charge for on campus students.
If you need to count some of the Spring 2020 tuition to get to $30K, You will have to do the math to see how much you need to reduce what you claim in 2020.
Q. Does this prevent him from filing independently?
A. Simple answer yes. Or more accurately, in my opinion, he must state he can be claimed as a dependent. He does not provide more than half his own support, he lives at home, and he was a full time student under 24.
But, as previously indicated, the IRS has not provided guidance on how 529 plan distributions are considered for the support test. The consensus is that it is parental support since the parent is the owner of the plan. You COULD take the opposite position, since he was the "recipient" of the 1099-Q (the distribution went directly to the school.
If he does claim himself, be aware of the support question in the personal info interview. It asks if he supported himself in 2019. But the fine print asks if he provided more than half his own support with EARNED INCOME. Answer no. Even though he is claiming he provided more than half his own support, it was not with earned income. This question determines whether he gets the refundable portion ($1000) of the AOTC.