My dependent son had $1,000 reported by community college on 1099-T for 2023. And we paid for this expense using 529 funds so as his parents we were issued a 1099-Q showing $600 of principal and $400 of earnings.
When I enter this in TurboTax why is my tax obligation increasing? This are qualified withdrawals used for education expense.
Maybe I'm entering the data wrong so guidance on where/how to correctly populate the information is appreciated.
Our income disqualifies us for any education credits to my knowledge.
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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. 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit, if you qualify. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
References:
Otherwise, after entering the 1099-Q, later at the Educational Expenses and Scholarships section, you enter the 1098-T and other expenses and TurboTax should balance them out. But, mistakes are easy to make.
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