I see conflicting info on whether or not to file a 1099-Q in TurboTax.
My situation is as follows:
- $20K Withdrawal
- $5K Earnings
- $15K Basis
- Recipient: My name, but used for my kid's private school 1st grade tuition
I have about $7.5K in education expenses (tuition, computer equipment, etc.) so $7.5K / $20K was used for tuition expenses and the remaining $12.5K was not. However, could the $12.5K (in my mind) be attributed to the basis that was originally submitted after-tax?
If I don't include the 1099-Q in my Turbotax return, I retain about $3K in federal refund.
If I include the 1099-Q in my Turbotax return + $7.5K in education expenses, I retain only about $1K in a federal refund.
If I include the 1099-Q in my Turbotax return but CHANGE the recipient to my child (which does match the 1099-Q), I retain about $3K in federal refund.
What should I be doing here?
The person who receives the funds and whose Social Security number on the form has to report the 1099-Q on their tax return. As the IRS will also be receiving a copy of the form, you must report it correctly so to match their record to avoid IRS correspondence.
If the form is issued in your name and your socials security number, you should report it on your return. As there is an excess distribution of $12,500 (20K-7500), it is considered a "non-qualified" distribution since there was not tuition amounts matching the distribution. There will a tax penalty applies to the entire excess distribution, and the earnings will be added to income. Your basis is a return of contribution and is not taxed. You do not attribute the distribution to the basis in the calculation. For more information, click here: Form 1099Q
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You may not attribute the excess withdrawal to basis.
This is how it's done:
Box 1 of the 1099-Q is $20,000
Box 2 is $5,000
Qualified expenses: $7500
7500/20,000 =37.5% of the earnings are tax free
0.375 x $5000 = 1875
You have $3125 of taxable income (5000 - 1875)
You enter the 1099-Q and expenses. TurboTax does the calcs and puts the taxable amount online 8 of Schedule 1 as other income and notes it as 1099-Q taxable