1099-Q and 1098-T questions

[brianinmaine]

I have both 1098-T and 1099-Q for my daughter this year and I am wondering where I need to enter those.

The 1099-Q is from a 529 that we have had for her and we paid the college directly from that 529.  The 1099-Q shows her SSN in the recipient's TIN

So do we file that in her taxes or do we put that in ours?  Also, for the 1098-T do we put that in hers or ours?  

Last year we entered both in our taxes but the 1099-Q was from a different 529 account and it had my wife's SSN as the recipient's TIN.

Thanks

[Hal_Al · Accepted solution]

Q. Do we file the 1099-Q in her taxes or do we put that in ours?  

A.  Hers, if it needs to be filed.  It may not. See full explanation below.

Q.  For the 1098-T do we put that in hers or ours? 

A.  Most likely yours. But maybe both, with adjustments. See below. Also see this post on the five main points on the  1098-T:

https://ttlc.intuit.com/community/college-education/discussion/re-what-do-i-do-with-form-1098t/01/37... 

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

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 (file the 1098-T on your return) before claiming the 529 plan earnings exclusion (unless your income is too high).  The American Opportunity Credit (AOC or AOTC) is 100% of the first $2000 of tuition and 25% of the next $2000 ($2500 maximum credit). The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit. Room and board (R&B) are also qualified expenses for the 529 distribution, but not the AOC (R&B are also not qualified expenses for a scholarship to be tax free).
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 regardless of whose money was used to pay 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. 
Example:
  $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 (on the recipient’s return)

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

There is  $1120 of taxable income (on the recipient’s return)

**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. Most people come out better having the scholarship taxable before the 529 earnings. A student, with no other income, can have up to $15,750 of taxable scholarship (in 2025) and still pay no income tax. 

[brianinmaine]

So in our case, the distribution from her 529 that went directly to the school was used to fully cover her qualified expenses (remaining tuition after scholarship and room and board).  It was only used for those purposes, nothing else..  So does that mean we really don't need to file the 1099-Q?  And the 1098-T still goes on our return?

[Hal_Al]

Q. So does that mean we really don't need to file the 1099-Q?

A. It depends on whether you are eligible for a tuition credit (she is your dependent and your income isn't too high [>$90K, $180K married]). See explanation above. You do not have enough expenses to cover the 1099-Q AND claim the credit. Some adjustments will have to be made.  If you are not claiming the credit, then yes

Q.  And the 1098-T still goes on our return?

A. Only if you are claiming the tax credit. Otherwise, it is ignored (like the 1099-Q, it's only an informational document)

If you are not claiming the credit , it might depend on why your student is filing a tax return and how much tax liability she has. 

[brianinmaine]

So we are eligible for the AOTC.

So, let me see if I understand based on your example above

$33,917 - total cost including tuition/fees/room and board

$17,000 - paid by scholarship ($16,000 for tuition and $1000 for room and board)

$4000 used to claim AOTC (I think its $4000, where would I find this in our return? is it line 27 on 8863 for student)

 = $12,917 can be used against 1099-Q

Box 1 of 1099-Q shows $16,267

Box 2 is $8,211.10

$12,917/$16,267 =0.794 - so 20.6% is taxable

which is $8211.10 * .206 =$1,691.49 is taxable and goes on her return?  If so where do I put it on her return?  Is it just other income or is there somewhere specific I put it.

Is my math correct?

[Hal_Al]

Q. $12,917/$16,267 =0.794 - so 20.6% is taxable; which is $8211.10 * .206 =$1,691.49 is taxable. Is my math correct?

A. Yes, basically.  But we need to know how much is in box 1 of the 1098-T.  Is the scholarship restricted (does it have to be used for/allocated to tuition)? Were there any book and computer expenses?

Q. $1,691.49 is taxable and goes on her return.  If so where do I put it on her return?

A.   It is just other income. TT will put it on Line 8z of Schedule 1 with the notation "Qual state (or private) tuition prgm from 1099-Q" if entered in the normal way.  Getting it there can be a little tricky in TT. I'll provide details, and/or a work aound, on my next reply.

What other income will the student be reporting on her return? From what sources?

Q.  Where would I find the amount used to claim AOTC ($4000) in our return? is it line 27 on 8863?

A. Yes

[AmyC]

Yes, the 1099-Q is not entered since it covered qualified education expenses.

The 1098-T will be entered once by the parent and once by the student in very different ways. The parent is claiming $4k paid while the student is claiming $4k income - as long as the scholarship allows the use for living expenses and is not dedicated to tuition only. There could be other expenses as well, books, supplies, etc.

Parent:

1. Enter the 1098-T basic information
2. For the box entries, only box 1 is entered $4,000
3. this maximizes your credit.

For the student, determine if kiddie tax comes into play and if your student needs to file a return.

[brianinmaine]

1. Box 1 of the 1098-T is $25867 - Box 5 shows $16,000 (if you need to know that).  I believe the $16,000 is designated for Tuition and Fees (there is $1,000 that is dedicated for Room and Board although the $1,000 for room and board does not show in Box 5 of the 1098-T) - I believe she had some book expenses, but it was minimal because most everything is online now.

2. Thank you, I'll look forward to your next reply on where to put it.  I assume I need to enter the 1099-Q into her return as it is outlined in the 1099-Q?

3. As for her other income she has a W2 from her summer job with income of $15395 and she also has income made from TikTok in the amount of $2000 (although she did not get a 1099 for this)

[Hal_Al · Accepted solution]

$33,917 - total cost including tuition/fees/room and board (I assume this number is correct)

-$16,000 - paid by scholarship (Use the box 5 number. Room & board scholarship is not tax free)

-$4000 used to claim AOTC

 = $13,917 can be used against 1099-Q

Box 1 of 1099-Q shows $16,267

Box 2 is $8,211.10

$13,917/$16,267 =0.856 - so 14.44% is taxable

which is $8211.10 * 0.1444 =$1,186

On your tax return, enter the 1098-T with $4000 in box 1 and box 5 blank or 0. Enter no other numbers. That will give you the maximum AOTC and simplify the entry.

On the student's return, TurboTax can theoretically handle it when you enter the 1099-Q and adjusted 1098-T (change box 5 to 21867) and  follow the interview carefully.  But, it's complicated and mistakes are frequent. 

I would use a simple workaround. Don't enter the 1099-Q or 1098-T, since you know the taxable amount. 

Enter at:

Federal Taxes Tab

  -Wages and income

Scroll down to:

--less common income

  ---Misc Income, 1099-A, 1099-C..... (Press start or update)

     --On the next screen, select Other reportable income

       --On the next screen, click "+Add"

          --On the next screen, for description type Qual state (or private) tuition prgm from 1099-Q  and enter the amount.

That reports it the same way as the long complicated path with a much higher chance of success. 

Since $1186 is less than the kiddie tax threshold of $2700, there should be no kiddie tax (depending on how the $2000 TikTok income is reported), but form 8615 will be generated and filed.  

[brianinmaine]

ok, wow...they sure dont make this easy 🙂

Just to clarify

1. On my return you are saying only enter 4000 for box 1 of 1098-T and 0 for box 5

And then on my daughters return, follow the workaround and enter $1,186 as the amount?

I dont need to enter the 1099-Q on either mine or hers? And if I follow the above, I should be all set?

[Hal_Al]

Q. On my return you are saying only enter 4000 for box 1 of 1098-T and 0 for box 5

A. Yes

Q. And then on my daughters return, follow the workaround and enter $1,186 as the amount?

A. Yes

Q. I don't need to enter the 1099-Q on either mine or hers? And if I follow the above, I should be all set?

A. Yes and yes. Verify that it shows up on line 8z of Schedule 1. 

One other after thought: It's unclear, to me, what the $1000 room & board (R&B) scholarship is and why isn't it included in box 5 of the 1098-T.  Although it was issued for R&B, is it restricted to R&B? Technically a scholarship restricted to R&B would be taxable income to the student (R&B is not a qualified expense for tax free scholarship). But, if it can be used for tuition, then deducting $17K instead of $16K is correct.

In other words, if you're sure there was actually $17K of scholarship, and not the $16K shown in box 5 of the 1098-T, then use  the original calculation of $1691 as the taxable amount of the 529 distribution, rather than  $1186.  

[brianinmaine]

Q: One other after thought: It's unclear, to me, what the $1000 room & board (R&B) scholarship is and why isn't it included in box 5 of the 1098-T.  Although it was issued for R&B, is it restricted to R&B? Technically a scholarship restricted to R&B would be taxable income to the student (R&B is not a qualified expense for tax free scholarship). But, if it can be used for tuition, then deducting $17K instead of $16K is correct.

In other words, if you're sure there was actually $17K of scholarship, and not the $16K shown in box 5 of the 1098-T, then use  the original calculation of $1691 as the taxable amount of the 529 distribution, rather than  $1186.  

A. In her scholarship letter is specifically says $1000 scholarship for Room And board.  I suspect it is not included in Box 5 of the 1098-T because it is only for R&B and the 1098-T does not include R&B cost in Box 1 and therefore does not include R&B scholarship in box 5.

So, going under the assumption that the $1000 in scholarship for R&B would that mean I need to add the $1000 to the $1186 for a total of $2286 in the workaround discussed or do I need to do something different? Or is the calculation of 1186 correct?

[Hal_Al]

Q. Does that mean I need to add the $1000 to the $1186 for a total of $2286 in the workaround?

A. Yes.

I have not seen this issue before, but that sounds like the simplest way and gets the right result, in your case. 

Ideally, you make an additional/separate entry at less common income/Other reportable income for the $1000 taxable scholarship.

[brianinmaine]

Thank you for everything! Much appreciated