Bug in TurboTax 2019? AOTC Penalty Exclusion

[jlar]

I am trying to enter an amount on Line 2e on form 1099Q (Final Section: "Distributions Not Subject to Additional 10% Tax").

Both lines 2c and 2e on this form (in form mode) will NOT allow entry of an 'Add Supporting Details' override. This feature works properly for the other lines in this section (2a, 2b, 2d) which is why I feel this is a Defect in the program.

Entries in this section appear to flow directly to form 5329-T where the 10% penalty is otherwise being calculated. In my case, I'd like to see the amount on 5329T Part 2 Line 5E showing the amount carried forward from the 1099Q Line 2e as a valid AOTC exception for the 10% Penalty (ie "Included only because qualified expenses were taken into account in determining American Opportunity of lifetime learning credit". If you try this, you will see that the amounts entered on 1099Q lines 2a, 2b and 2d correctly flow from 1099Q to 5329-T Part 2 Line 5.

Currently, I am using an OVERRIDE on 5329-T Line 5E to accomplish this.

TurboTax passes checks with this in place so maybe its OK. However, it would be better if the program was corrected if this is in fact a Defect.

Can anyone verify this Bug and/or know how to submit this for consideration?

Is form 1099Q just a 'worksheet' or will that actually be sent to the IRS along with actual forms?

Note: Per my accountant, my tax situation requires filling of the 1099Q (on my daughters form) for 529 distributions in excess of tuition after having claimed the AOTC on my (parent) return (ie to avoid the "Double Dipping" rule). I just can't figure out how to make TurboTax accept the numbers and it seems like a software glitch.

Thank you.

[NCperson]

can you please post these answers / numbers and maybe i can help you figure it out.... if does take using Forms view

1) whose social security number is on form 1099Q? (your's or your daughter's?)

2) did your daughter earn enough to even file her taxes? (for simplicity did she earn  more or less than $12,200 and did she have any withholdings on those earning)?

3) what is in Box 1 and Box 5 on Form 1098T

4) what is in Box 1 and Box 2 on Form 1099Q? 

5) what other qualified expenses (room and board, books, computer related expenses) do you have that are NOT reflected on Form 1098T?

ps to answer your question, the information on form 1099Q does NOT get reported to the IRS.  It is simply your responsibility to determine if any of Box 2 is taxable - see the first paragraph of the instructions attached to the form 1099Q. 

[jlar]

Thank you @NCperson 

We already hashed out all my numbers ad nauseam in another thread !

I got frustrated and called upon my former accountant and was able to verify the numbers with her also. Unfortunately she is too booked up to help me finish up my taxes until summer so I thought I'd give this one more shot and started over on both mine and my daughters returns. 

At this point I'm just trying to figure out how to enter the offset for the 'AOTC Penatly Exemption'. The final section in turboTax 1099Q form appears to be for this...but the 'add supporting details' feature to enter a value manually does NOT work for the line item in question (2e) - a box pops up for entry but when closing the pop-up form the amount is NOT placed on the main 1099Q form (that is a BUG if I've ever seen one!). Some of the other line items in that section do work and the amounts get carried over to the 5329-T (where the results for penalty/offsets are actually calculated).

Since the 1099Q won't allow me to enter a number my solution is to enter the OVERRIDE into 5329-T part 2 Line 5E manually. This achieves the proper tax treatment for my scenario (ie, it nullifies the 'penalty' on 529 distributions caused by the taking of the AOTC on my (parent) return).

SINCE, as you say, the 1099Q form itself does NOT get transmitted to the IRS, I guess it really doesn't matter if this feature works or not.

BUT, it is a DEFECT in TurboTax 2019 and should be rectified. Can I be the only person in the USA who has this situation and is trying to enter a number is this field? Hard to believe that... 

@NCperson  - thank you for your reply and for your more detailed help a few weeks ago - you're advice was spot on from day one and I appreciate that you are helping people with this VERY CLUEGY handling of Education Credits in TurboTax 2019.

If you know a better place to make the override to handle the AOTC Penatly Exception please post it here. In the replies from my accountant, she said "Enter this amount on Student Info sheet as AOC exclusion"...I cannot find any such place on the Student Work Sheet to enter such exception information.

By playing around in form mode I found that, in general, the Student Info Sheet will result in entries on the 1099Q...and that entries on the 1099Q in some cases flow directly through to the 5329-T.

At this point I may just have to file and hope for the best. 

[KrisD15]

If the 1099-Q is entered in the same TurboTax program as the Taxpayer that is getting the American Opportunity Tax Credit, the software will know and not compute the penalty interest. 

Regardless if the 1099-Q was issued to you or your daughter, you enter the 1099-Q into your TurboTax program so that the software can do the math. (The program will ask who was issued the 1099-Q and you have the option of choosing your dependent listed on your return.) 

If any of the distributions are taxable, YOUR program will tell you what to report as "other income" on your daughter's tax return. 

You do not need to enter the 1099-Q a second time (on your daughter's return) just the taxable income amount. 

[jlar]

I actually did try entering the 1099Q on my return. Not sure if it counted it as income or added a penalty...but the AOTC amount dropped to $334 instead of $2500. I didn't dig in to that too deep but it could have pushed me into the phase out range.

I'm pretty sure the 1099Q goes on the students form (it has her SS# on it)...at least that is what most folks have said...along with "just don't enter it all"...and "just provide info later if asked".

Thank you for your reply @KrisD15 

Can anyone verify the bug I described in TurboTax? Is there a place to report such things?

[DavidS127]

The 1099-Q goes on your tax return with your daughter's 1098-T, as KrisD15 advised.  When you enter the 1099-Q you will get a question about "who is the recipient" and "who is the beneficiary".  In your case, for both questions it is your daughter.

The issue with your AOTC amount is that TurboTax assumes you want to use the 1099-Q amount first . But, you probably want to first use your daughter's qualified education expenses for the AOTC first, with any additional qualified expenses applied toward the 1099-Q distribution.  The easiest way to fix this in your Download/CD version of TurboTax is to go to Forms mode and find your daughter's "Student Info Wk".  Scroll down to Part VI and find line 17.  If you enter $4,000 on line 17, TurboTax will first use $4,000 of your daughter's qualified expenses for the education credits/deductions (e.g., AOTC) and then use the rest of the expenses you entered to apply against the 1099-Q distribution.

Note that if you enter the 1099-Q first (or whenever you enter it), TurboTax will open up boxes in the 1098-T section for you to enter any room and board and other types of expenses that can be used for the 1099-Q distribution, but not the AOTC.

[jlar]

Thank you @DavidS127  that is very interesting and I will look at those specific techniques you recommended.

Some others have also stated to put the 1099Q on my/parent form as well (because she is my dependent) but I'd say its been about 50/50  for putting it on the student form - along with "don't enter it at all".

If I have to pay any marginal tax on 1099Q distributions that would be better on my daughters return than mine as her rate is much lower.