529K distribution

[vze56v6x]

I have been reading other similar posts and responses to below but am still unsure what to do.

1. I had my sons 529K distribution sent directly to me and then I paid the school directly. 

2. The check was made out to me- not the school or to my son.

3. The 529K shows the checkbox checked that the recipient is not the designated beneficiary and distribution code = 1

4. I paid the school directly for the college tuition

5. Because of #3 above, when I enter into turbo tax it is considering this as taxable income and increasing my taxes.

6. How do I show or prove that these funds were used and paid to the school?

6. I should also note that Turbo tax is telling me I cannot write off any tuition expenses for my child as our total income was too much. Is there anything we should be doing differently for 2023?

[Hal_Al]

The income limit for claiming a tuition credit is $180,000 (Married filing jointly), with a phase out between $160,000 and $180,000.

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. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

Reference: 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." 

If you want to go to the trouble (and as you now  know, it is a lot of trouble), of getting the TT worksheet, enter the 1099-Q first.  Later, in the education expenses section, enter the 1098-T and follow the interview to enter other expenses and qualifying info. To get the screen to enter Room & Board, answer yes when asked if you have book expenses.

[vze56v6x]

OK thank you. I am still a little confused.

I see on my 1040,  $1045 being added from a qualified tuition program as taxable income. 

I know you wrote below " 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 how ill turbo tax assess this if it's telling me our income is over $180k and we cannot deduct ant college expenses.

You also said I can opt not to enter this, but the check was made out to me, the parent, not the child so won't I get in trouble for not reporting this amount.

This is all so confusing.  And very frustrating that nothing for college can be deducted or considered. Does the $180k based on AGI or what the govt looks at as taxable income?

[Hal_Al]

Q. How will turbo tax assess this if it's telling me our income is over $180k and we cannot deduct ant college expenses.

A. The $180K limit applies to being eligible for the Tuition credit.  There is no income limit for a 529 Distribution to be tax free. 

Q. You also said I can opt not to enter this, but the check was made out to me, the parent, not the child so won't I get in trouble for not reporting this amount.

A. Regardless of whether the student ("beneficiary") or the parent ("owner") is the "recipient'' (gets the check), you have the option of not reporting it, if you know none of it is taxable.  The actual IRS instructions (quoted above) effectively say don't report it.

Q. And very frustrating that nothing for college can be deducted or considered. 

A. You are getting a tax break, since the 1099-Q is not taxable (the earnings [box 2 of the 1099-Q] were tax free.

Q.  Does the $180k based on AGI or what the govt looks at as taxable income?

A.  AGI; technically MAGI, but for most people there's no difference. 

[vze56v6x]

ok so basically if I had 15K in tuition and a 529K of $10K, I dont need to report the 529K even though I don't actually qualify for any college deductions or credits (because the Feds say my income is too high). I can just keep the 529K along with the 1098 T I received for my records and report nothing on taxes. Correct?

We did use the 529K distribution to pay the tuition but I also qualify for no credits or expenses deductions because the income threshold is higher than allowed by maybe $10K 

I just want to be sure excluding this is ok because right now if I include the 1098-qt, turbo tax is adding about $1045 of the distributed amount  as taxable income

[Hal_Al]

Q. ok so basically if I had 15K in tuition and a 529K of $10K, I dont need to report the 529K even though I don't actually qualify for any college deductions or credits (because the Feds say my income is too high). I can just keep the 529K along with the 1098 T I received for my records and report nothing on taxes. Correct?

A. That's correct.

Q. We did use the 529K distribution to pay the tuition but I also qualify for no credits or expenses deductions because the income threshold is higher than allowed by maybe $10K 

A. That's correct. 

Q. I just want to be sure excluding this is ok because right now if I include the 1098-qt, turbo tax is adding about $1045 of the distributed amount  as taxable income.

A. Basically, TurboTax (TT) got it wrong (it's a known glitch, they're working on it). Even though you're not eligible for a credit, TT's calculations assign $10K, of tuition,  to the credit, making it appear that some of the distribution is taxable.  You can view the erroneous calculations on both the student info worksheet (in particular part VI, line 17) and the 1099-Q worksheet.