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WIFS
New Member

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

The total expenses for college (1098-T and Room/Board) was greater than the amount listed on the 1099-Q. I expected that my Federal tax would not change after this information was entered, but it did. Is there something I entered incorrectly or do I need to pay federal tax on the amount I used for Room/Board.

11 Replies
Hal_Al
Level 15

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board 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.

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." 

 

But, you cannot double dip!  You cannot claim the same expenses for the 529/ESA distribution that you used for the Tuition credit and/or tax free scholarship.

 

There are three things you can do with your Qualified educational expenses (QEE):

  1. Allocate then to scholarships (so that the scholarship remains tax free)
  2. Use them to claim an education credit
  3. Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

TurboTax allocates QEE, in that order, until you tell it otherwise.

 

Provide the following info for more specific help:

  • Are you the student or parent.
  • Is the  student  the parent's dependent.
  • Box 1 of the 1098-T
  • box 5 of the 1098-T
  • Any other scholarships not shown in box 5
  • Does box 5 include any of the 529/ESA plan payments (it should not)
  • Is any of the Scholarship restricted; i.e. it must be used for tuition
  • Box 1 of the 1099-Q
  • Box 2 of the 1098-Q
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
  • Room & board paid. If student lives off campus, what is school's R&B charge
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
  • How much taxable income does the student have, from what sources

 

_________________________________________________________________________________________

 

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit,  that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

 

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q. 
Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (usually on the student’s return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 600= $240

You have $240 of taxable income  

 

**Alternatively; 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip!  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, in case of an IRS inquiry.

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." 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Most people come out better having the scholarship taxable before the 529 earnings. 

WIFS
New Member

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

Answers to the questions

  • Are you the student or parent.  Parent
  • Is the  student  the parent's dependent.  Yes
  • Box 1 of the 1098-T  $8,935
  • box 5 of the 1098-T  $0
  • Any other scholarships not shown in box 5  No
  • Does box 5 include any of the 529/ESA plan payments (it should not)  No
  • Is any of the Scholarship restricted; i.e. it must be used for tuition  No
  • Box 1 of the 1099-Q  $15,220
  • Box 2 of the 1098-Q  $9,197
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?  Parent
  • Room & board paid. If student lives off campus, what is school's R&B charge $6,390
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
  • How much taxable income does the student have, from what sources  $2,307 - Work 

I am trying to add this information to my taxes.  Should I be doing this under my daughters taxes?

KrisD15
Expert Alumni

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

Did you enter the dependent information first, then the 1099-Q, then the 1098-T in that order? 

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Hal_Al
Level 15

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

Do not enter anything, about education on your daughter's return. As a dependent she is not eligible for a tuition credit. Since you are the "recipient" of the 1099-Q, not her, she does not report the 529 distribution. She has no taxable scholarship to report.

 

If you are not claiming a tuition credit, then just don't enter either the 1099-Q or 1098-T on you tax return. They are only informational documents and are not required to be entered.  The distribution is fully covered by expenses

 

If you are claiming a tuition credit, then some of the 529 distribution is taxable because you are using some of the expenses for the credit and cannot use the same expenses for the 529.

  $15,325 in educational expenses(including room & board)

   -$        0 paid by tax free scholarship

   -$4000 used to claim the American Opportunity credit

 =$11,325 Can be used against the 1099-Q 

 

Box 1 of the 1099-Q is $15,220

Box 2 is $9197

11235 / 15220 =73.8% of the earnings are tax free; 26.2% are taxable

26.2% x 9197= $2408

You have $2408 of taxable income

 

One possibility is that TurboTax allocated part of your dependent's college expenses to claim the Tuition credit, even if you are not eligible or otherwise did not claim it. That reduces the amount that can be used to claim the  529 earnings, shown on the 1099-Q, as being totally tax free. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.  You may reach that screen sooner.

paquara
Returning Member

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

Still trying to figure this out so I am not double dipping.

Answers to the questions

  • Are you the student or parent.  Parent
  • Is the  student  the parent's dependent.  Yes
  • Box 1 of the 1098-T  $16688 + 1028.75 (2 schools)
  • box 5 of the 1098-T  $500 (for the $16688 school)
  • Any other scholarships not shown in box 5  Yes for one
  • Does box 5 include any of the 529/ESA plan payments (it should not)  No
  • Is any of the Scholarship restricted; i.e. it must be used for tuition  No
  • Box 1 of the 1099-Q  $15,738
  • Box 2 of the 1098-Q  $2534.48
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?  Student
  • Room & board paid. If student lives off campus, what is school's R&B charge $0 (lived at home due to covid)
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
  • How much taxable income does the student have, from what sources  $0
  •  

 When I completed my taxes it gave me the American Opportunities Credit for her.  I completed the amounts for the 1098 Q and 1098 T and thought Turbo Tax would help to figure this out.  I didn't realize what I didn't need to report.  There was a memo that said that she would have to report $1372 of reportable income which I didn't know what to do with.  I have submitted my federal return.  Can I fix it and send an amended return?

paquara
Returning Member

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

Part 2 to my question about how to complete the information for tuition and the amount that we may owe because of the "student beneficiary needs to report $1372 of taxable income from the 529 plan.  Where does that go on her tax form?  She does not work and has nothing else to claim.

AmyC
Expert Alumni

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

You can amend your return, if you need to, once the original is settled. I don't know what you entered.

 

Let's do this a different way.

Total tuition paid box 1 totals $17,716.75.

Scholarships 500+ ?? unknown amount - goes toward tuition up to $1978.75 plus missing information and then remainder to food expenses.

Box 1 of the 1099-Q  $15,738. It is less than tuition, does not need to be entered. Fine if it is, nothing taxable.

 

So, the Q is irrelevant and does not even need to be entered.

 

Missing information: unknown expenses for college that were not entered above. The cost of internet due to COVID, books, supplies, etc are not listed above that need to be included in education expenses.

 

This leaves taxable income of the food expenses above minus the missing education expenses. I can't imagine it being very much, if any at all. You do need to write all this down and determine if she has taxable income. Keep it with your records in case the IRS asks. You can show them how and why you came to your answer.

 

To report the information on her return, since this is her only income and will be less than $12,400, so not taxed. Follow these steps:

 

  • Click on Federal Taxes
  • Click on Wages & Income
  • Scroll down to Less Common Income
  • Select Show more
  • Scroll down to  Miscellaneous Income, 1099-A, 1099-C
  • Start
  • Answer Yes to Did you receive any other wages?
  • Select Other reportable income 
  • Start
  • Enter Scholarship and the amount.

@paquara

 

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paquara
Returning Member

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

@AmyC My daughter only received $500 in scholarship from one school.  Since she lived home, I have learned that I could enter an amount for board since she does not pay rent. I went into my tax return in Turbo Tax and entered the amount that the school charges for a limited food plan for one semester ($1558).  Her books were all online references so there was no cost there.  Internet was part of the family plan so I didn't include it (although she did need it for her classes).  In the section "Choosing a larger education credit or deduction" I changed the amount used to calculate education credit or deduction from $10,000 which had been prepopulated in Turbo Tax to $4000 (as seen in some of the examples on the community forums).  The tax I owed did not change, the amount of American Opportunity Credit did not change but the amount she now owed changed from $1372 on my initial return to $155.  It seems like I would need to file an amended return to show these amounts and not have to file a tax return for her.  These are just things I didn't know I could account for when doing my return.

AmyC
Expert Alumni

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

@paquara  Your tax liability does not change so no amended form is needed. Instead, keep track of all that you just mentioned. There is no reason to file a tax return for income of $155 for your daughter. Woohoo! Great job!! Sit back and relax after you put all these notes in your tax file!!

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paquara
Returning Member

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

@AmyC Thank you!!!  I have printed everything and made notes for the file.  Can't believe how complicated this is and it causes me stress every year.  But you and @Hal_Al  have been so helpful with my many questions.  I hope to be better prepared next year with all of the advice you both have given me.   Thank you again.

AmyC
Expert Alumni

College Expenses - My Federal tax increased even though the expenses (Tuition, Room, Board) was greater than my 1099-Q

Perfect! Have a great year!

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