1099-Q withdrawal and 1098-T and other expenses do not cancel out

[AZTTUser]

Situation with rounded off numbers:

Got a 1099-Q from NY 529 (Parent as recipient), as payments made to school by parent were withdrawn later from 529 account by parent. Box 1 Value: $25000

Box 2 Earnings: $4500

Box 3 Basis: $20500

Box 6 Check if the recipient is not the designated beneficiary = Checked

Got a 1098-T from University (Student's name)

Box 1 Value: $24000

All other values blank

Student has no other income

Room & Board expenses (not included in 1098-T) = $2000

Other qualified expenses withdrawn from 529 (Laptop etc.) = $1000

So actually expenses for college clearly are more than 529 withdrawal.

When I answer the 1099-Q interview questions with Parent as recipient and student as beneficiary, and then go through 1098-T questions in expenses and add other expenses as above as well, it increases my federal liability by around $800.

Parents do not qualify for any other education credits as income is well over the threshold of $180000.

My question is why should I have any tax liability if all 529 withdrawals are for allowed expenses only?

[MinhT1]

If the distribution reported on form 1099-Q is fully justified by qualified education expenses (including room and board), you do not need to to enter form 1099-Q on your tax return. Just keep that form in your tax records along with proof of education expenses.

In your case, you can safely delete that form 1099-Q from your tax return.

Please read this TurboTax article for more information.

[AZTTUser]

While I understand that is an option, my questions are:

1. Why does the turbotax interview not mention or offer that as an option?, and

2. Upon entering things correctly, why does turbotax still end up with additional taxes when there should not be any?

[Hal_Al]

Q.  Why does the turbotax interview not mention or offer that as an option?

A. They're working on it

Q. Upon entering things correctly, why does turbotax still end up with additional taxes when there should not be any?

A. TT is flawed.

One frequent problem, I've seen in this forum,, and it carries over from last year, is that TT has allocated $10,0000 of expenses to the tuition credit, instead of the more appropriate $4000 (or $0 if you  are not claiming the credit).  In the past, TT provided a screen  titled  “education expenses used for a tax credit”. It was usually prepopulated (often with $10K). You could change it for the amount you want to allocate to the ed credit. So far, this year, I haven't found that screen, even after recent updates.

If you don't get that screen, you can check the student information worksheet. You can manually change it there (line 18). Make the change in the first column, on the left. It was line 17 prior to 2025