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willlint
New Member

Does a disbursement from a qualified state education plan to a university for tuition for my 24 year old full time student count as income on his return?

My student received a 1099Q from the qualified plan and a 1098T from the university.  The qualified pre-paid tuition plan paid for tuition and fees, I paid room and board. I claimed the student on my tax return, so she is filing a return as a dependent.  She had less than $1,000 earned income and Turbotax is including the disbursement from the qualified plan as additional income.

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2 Replies
willlint
New Member

Does a disbursement from a qualified state education plan to a university for tuition for my 24 year old full time student count as income on his return?

I am the owner.  However, in this case the administrator mailed the 1099-Q to the student beneficiary, a dependent on my tax return.  I am currently taking the educational credits on my return.  This makes sense to me.   However, when preparing the dependent student beneficiary's tax return, it appears to me that I am seeing a case of the tax consequences of the earnings as shown in box 2 of the 1099-Q being switched from me, the owner, to my student beneficiary.  Turbotax is treating the earnings as income on my student beneficiary's Federal return, even though the funds went directly from the administrator to the university exclusively for qualified tuition expenses.  Not sure that this is correct.  Are the earnings as shown in box 2 of the 1099-Q considered income on the dependent student beneficiary 's Federal return even if all of the earnings were paid for qualified tuition expenses?
KrisD
Intuit Alumni

Does a disbursement from a qualified state education plan to a university for tuition for my 24 year old full time student count as income on his return?

If the 1099-Q was used for education expenses, it would not be taxable income.

You need to research who the owner and beneficiary is.

If you are the owner, the most straight forward way of reporting is, you enter the 1099-Q first, next all education expenses. The expenses will cancel the 1099-Q.

"Distributions or benefits reported on Form 1099-Q, Payments from Qualified Education Programs, are received from a Coverdell education savings account (ESA) or a 529 plan (also called a qualified tuition program (QTP)).

The form is sent from the bank or administrator that manages the 529 or ESA. The owner of a 529 account (whoever set it up and makes contributions to it) gets the form and has control over the funds.

If the beneficiary is the owner’s dependent,  the owner  is responsible for potential tax consequences. But if the beneficiary files their own tax return,  they’re  responsible for potential tax consequences. 

The distributions aren’t subject to federal tax if the funds are used to pay for qualified education expenses, you often don’t have to pay state tax either. However, distributions that exceed those expenses can be taxable."

Next, you say you paid Room and Board. Did you use the distributions for that? Many plans allow the distributions to pay room and board, freeing up tuition to be used for the education credits. You would need to check with the plan's administrator about this.

Click the link below for IRS Pub 970. It explains different ways you can maximize your education credit.

CLICK HERE for TurboTax information about available Education Tax Credits

CLICK HERE for IRS information about Education Credits  

CLICK HERE for a guide to the 1098-T

CLICK HERE for more information on the 1099-Q

CLICK HERE for a guide to the 1099-Q

CLICK HERE for IRS Pub 970 Tax Benefits for Education







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