1099-Q vs 1098-T

[fvconstantine]

The 1099-Q I have for my son includes withdrawals on December 27th for 2022 tuition. The 1098-T only includes the expenses for the August 2021 semester. Do I simply over write the 1098-T to reflect tuition paid for within the first 3 months of 2022? If I do not, it attempts to tax the distribution as it exceeds the 2021 1098-T.

[fvconstantine]

Also even when I zero it, the scholarship he received is generating a tax liability even though it in no way exceeds the amount paid for qualifying tuition. I have used turbo tax for almost 20 years, and find its inability to have help for this disappointing. Paying 2022 tuition at the end of 2021 is common, and the scholarship from all publications I read should not generate a tax liability. Any help would be appreciated.

[JillS56]

The 1099-Q and 1098-T are forms that do not need to be reported on your tax return.   If all of the funds were used to pay for qualified educational expenses then you do not have to report these documents in your tax return.   However, you should keep all the documentation with your return.  

Funds distributed from a 529 Plan, will be reported by the bank on Form 1099-Q.   The 1099-Q is sent to the owner/recipient of the 529 Plan funds.   The Form 1099-Q is to be reported as income if they were not used to pay qualified college tuition/expenses.    If the amount reported on the 1099-Q were used to cover qualified college tuition/expenses you do not need to report the income.  If the amount exceeds the amount of college tuition/ expenses then the excess needs to be reported as other income on your 1040.   Here is an article that talks about What is IRS Form 1099-Q. 

Additional eligible expenses to apply to the 529 Plan:

• Room & board paid. If the student lives off campus, what is school's R&B charge. If the student lives at home, only the school's board charge for on campus students. 
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources
• Are you trying to claim the tuition credit (are you eligible)?
• Is the student an undergrad or grad student?

After applying the 529 Plan funds there is still a balance of tuition/expenses, then this amount is used to determine the amount of education credit.   On the other hand, if the amount of scholarships in Box 5 and the 529 Plan Funds exceed the total qualified tuition/expenses in Box 1, then this amount is reported as income on the return.  Reporting 529 Plan

In answer to your questions, if the funds withdrawn from the 529 were used to pay for qualified educational expenses, then you do not need to report the 1099-Q.   Since you have withdrawn sufficient funds from the 529 Plan and with the scholarship funds in Box 5 covered his tuition expenses you would not be entitled to the education credit, do not include the 1098-T on your return.   

[Hal_Al]

Technically, your 529 distribution is a non qualified distribution and therefore  taxable and subject to the 10% penalty.  The distribution must match the year the expenses were paid.  But, as you said, yours is a common situation.  You'll have to use a workaround and hope for some leniency from the IRS if you get "audited" (that's unlikely) .  Try to do better next year.

That said, the simplest thing to do is ignore the 1099-Q. Wait and enter it next year (if you even need to enter it then).  Most people end up not entering the 1099-Q,  at all, even in a matched year. 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."   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. 

Yes,  overwriting the 1098-T to reflect tuition paid for  the first 3 months of 2022 is alternate option. But that won't account for room and board and other expenses not included in the tuition box.

As to the 2nd issue,  the scholarship he received is generating a tax liability even though it does not exceed the amount paid for qualifying tuition, does box 5 include scholarship designated for 2022?  If so, you will reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2021 expenses".  Another possibility is TT has allocated too much money for the tuition credit. Go through the  education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want (no more than $4000 for the American Opportunity Credit) to use or change it.