TT really dropped the ball on Education expenses and credits. When I checked all forms after completing the usual interview, TT assigned all Education items to my older child, who has been out of school now for 2 years and wasn't even part of the interview, instead of my younger child who was the only one mentioned in the interview input. Second, TT calculated some excess distributions from my son's 529 that were thus added to my taxable income and assessed the 10% penalty. But I had NO such excess distributions, so I had to override some of the inputs. I am a financial advisor, and have taken education credits now for the 8th and last year of my childrens' college expenses, so I know what I am doing and am very familiar with 529's and the American Opportunity Tax Credit; thus I definitely have never taken excess distributions from any of my kids' 529's. Anyone else experienced something similar? Beware of this, and make sure you thoroughly check your work before filing if you have higher education expenses and credits!
Yes! There is a huge glitch with 529 accounting. I am including a thread I found that helped me. I copied the thread in Italics below. The question was raised by user30730966:
We took a 529 Distribution for 2016. T-Tax says we have an excess distribution. The QTP distribution worksheet is not taking into account form 1098-T tuition. Why?
We took a 529 Distribution for 2016. However Turbo Tax is telling us we have an excess distribution and is calculating a tax on the excess. This is because the "Taxable Qualified Tuition Plan (QTP) Distributions" worksheet is NOT taking into account the tuition and fees amount entered for form 1098-T. In addition, values entered into the college expenses step-by-step area in any of the 3 Books entries are also NOT being counted as an expense. I understand that these are not valid expenses for the purposes of tax Credits, by why does the 529 calculator appear to be messed up?
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If you know, for sure, that you have enough qualified expenses to cover the entire distribution, just don't enter the 1099-Q, at all. There is no actual IRS form that it goes on.
Otherwise, after entering the 1099-Q, you have to enter enough qualifying expenses to offset the box 1 amount.You will need to visit the education section to enter the tuition to offset the 1099-Q.
Follow these steps. Go to:
- Federal Taxes
- Deductions and Credits
- Expenses and Scholarships
You will reach a screen "Amount Used to Calculate Education Deduction or Credit". Enter 0 (TurboTax may have pre-populated the box and you should change it to 0).
I have two sons in college now and saw a huge jump in taxes owed ($5000) after entering my 1099-Q, even though the distribution was considerably less than my expenses and should not have been taxed. Two things helped. First, I zeroed out the "Amount Used to Calculate" per the instructions in the answer above. Turbo Tax had auto-filled these boxes with enormous numbers, and I think those amounts were being subtracted from my expenses such that my 529 distribution was wrongly considered an excess distribution and was thus taxable. (Ironically, my sons didn't even qualify for the tax credits.)
My second fix was to enter Room and Board expenses after a long, hard search for WHERE to enter them. Under the "Here's your Education Summary" tab, choose "Other Education Expenses" then "Did child pay for Books or Materials to Attend School." I chose "YES" to get the option to "Enter child's Education Expenses" that includes a box to enter expenses for Room and Board. I actually had no book receipts and had skipped over this tab, not expecting Room & Board to be filed under the "Books or Materials" heading.
I have not had a problem with expenses being assigned to the wrong child, but I would suggest deleting the child and starting over.
I don't like the part of the advice above that suggests not entering 1099-Q amounts into Turbo Tax. It just seems like a sure-fire way to get a nasty notice from the IRS in a year or two.
This has been a frustrating few days for me. I know I have overpaid in the past due to this same glitch, but I had not been able to figure out WHY my distribution was being taxed or find a fix. My guys are 24, 22, and 19 -- I've had college expenses every year for the past six years -- and I am just now learning how to correct Turbo Tax's faulty accounting. Grrrr.
FIX THIS PROBLEM, TURBO TAX! I TRUSTED YOU!
Turbo Tax 2019 is inaccurate when handling info to calculate qualified education expense. It subtracts scholarship in box 5 from 1098T from box 1 total payments and thinks that result is the total qualified education expense. The scholarship wasn’t a payment made on my behalf but a reduction in the initial school bill. It took a long while but I found where I can override it in a worksheet by saying the scholarship subtracted nada from the qualified expenses that came from box 1 on the 1098T. There are other issues like the easy step interview saying my son has to pay taxes on all the scholarship he received and so forth. I have always liked turbo tax but with this stuff I realize it’s limitations.
Hi, can yo share where in Turbotax did you manage to do the override? My issue is to be able to remove the room and board cost from the total payments so that the credit is given only for qualified expenses, but Turbotax does not have a field to enter this info in the education interview.
It is best for your to switch to the Desktop Version of TurboTax to handle this situation. You can make entries directly on the forms so that you receive the appropriate credit.
If you have paid for TurboTax online and call Customer Service they can give the Desktop download at no additional cost. If you have not purchased the online program yet you can purchase TurboTax Desktop version for TurboTax or other retailers such as Amazon, Costco and others.
You can download your 2019.tax file from the online version to keep all of the information you have put into your tax return by going to
- Tax Tools (on the left of the screen)
- Save your 2019 return to your computer
Once you have installed the 2019 program on your computer click on
Click on the option to Find a Tax File.
Go to your Downloads file on your computer and open your tax file.
It will load all the information you had in your online return into the Desktop version of TurboTax.
You can switch to the forms mode up the upper right hand corner (if using a PC) and then make changes on directly on the Student Information Worksheet to have the credit calculate.
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