End of year 529 disbursement to college

[sacbut]

Hi. College tuition was due in early January. I initiated the payment from my 529 plan in December. 529 recorded the payment in 2019; however college did not record payment until January 2020. So now I have a large (out of state) disbursement on my 529 in 2019 and yet the 1098-T does not show it. I am trying to make a manual entry for the 1098-T (which turbotax allows) with a note describing what happened and statement that I will adjust 2020 tax return as well. Does anyone know if this will be acceptable to IRS? Note that payment was direct to college and did not pass through my hands.

Thanks, Russ

[KathrynG3]

It depends. The IRS does not accept taxpayer notes unless included on an official IRS form for correspondence. The Publication 970 as noted below does allow for the expenses of the first three months of the next year to be included in the current year. As long as the distribution matches qualified education expenses in this extended time frame, there is no excess distribution to explain.

See this article for more information Can I include education expenses on my 2019 return that I paid 2018 or earlier?

For more details about education expenses and reporting Form 1098-T, see the articles below:

1. How do I enter Form 1098-T?
2. How do I enter Form 1099-Q?
3. Qualifying education expenses
4. IRS Publication 970 Tax Benefits for Education, page 40 for Academic period in column one and Prepaid Expenses in column 2.

@sacbut

[sacbut]

Great, that is very helpful. Since my college did not include the spring semester tuition on their 2019 1098-T form, do I add that into the 1098-T form in TurboTax, or do I enter somewhere else in TurboTax?

[DavidS127]

On the same screen where you enter your 2019 Form 1098-T information, click the "What if this is not what (person) paid to this school?" link under box 1 entry for the 1098-T to enter the tuition paid in 2019.

[minglee64]

I have the same situation and thank you for pointing out the place/link to enter the addition payment I made for 2020 tuition to the school. By doing this, would the additional payment amount be considered as qualified college expenses? In the 1098-T form, I do see supplemental information for Box 1-payment reportable which has "current payments received" information, including the amount for spring 2020.  Is there any additional information we need to submit, such as school's billing or invoice for 2020 sprint?

[KrisD15]

You may include payments made in the tax year for education expenses of that year and/or the three months of the following year. 

If you paid in 2019, it should be included in Box 1. 

If it isn't, the school did not report the 1098-T and you can adjust for it by using that link. 

You do not need to send any additional documents with your tax return, however you would need to keep copies of the student's school account statement with your tax file.

Be sure to make any adjustments next year if needed. If the 2020 tuition was paid in 2019, you can't use that payment/expense on your 2020 tax year return. 

[Roman66]

Got a similar issue with 2 kids. Your advice was helpful. I adjusted 1098-T entries, but once I entered 1099-Q, TT told me that my kids must report the overpayment on their returns. The 529 checks submitted on 12/30/2019 were for the spring semester. Those should still count as qualified distributions. How do I fix that?

[DavidS127]

More information may help resolve your issue.  For example, does the Form 1098-T report Scholarships that exceed the qualified education expenses, resulting in taxable income that must be reported on the student's tax return?