I received distributions from a 529 plan, and all the money went to qualified education expenses (tuition, rent, food, etc.). If the $12k distribution is less than the $15k adjusted qualified expenses (total qualified expenses minus scholarship) .. do I have to enter 1099Q info in turbox .. or can I skip that section and just keep the documentation in file in case of audit? I wish the turbotax section made this clear.
Also, do I need to document every off campus qualified housing expense .. or can I just use the published university cost for room/board, as long as below that amount? We are well under the published amount.
room and board is the lower of actual or what the school publishes. So you have to document which one you used (and have some receipts / cancelled checks / bank statements!).
I assume from your post that you are not a dependent of your parents. That would change the answer.
do you have any other taxable income? why are you not taking the AOTC credit?
with the caveat that those questions are outstanding, if Box 1 on the 1099Q is less than your qualifying expenses, just keep the records that document your approach stored away as there is no need to submit the 1099Q on your tax return/.
Actually I am a dependent on my parent's income, so I can't take the credit. I had $8,500 in wage income plus $600 in interest earned on Series EE bonds as my total income. The 529 money was from grandparents, and 100% was spent on school expenses. I'll just have to document.
Yes, you are correct, you cannot take the credit. However, your parents could potentially take one of the education credits or tuition and fees deduction, if eligible.
You mentioned you were using Series EE bonds. Please check whose name and social security number are on the Series EE bonds. Only that person should report this. Also, this income should be earmarked for higher education expenses for a tax break. Please see this article where TurboTax Expert HelenC12 shares some screenshots. EE Savings Bonds Used for Tuition.
Keep in mind is that education expenses that are allowed to be paid with the 529 money are not always qualified education expenses for an education credit.
Specifically, room and board doesn't count as a qualified education expense toward an education credit. Since college tuition for the year is usually well beyond the $4,000 of qualified education expenses allowed for a $2,500 credit, this does not matter unless a scholarship clears out nearly all education expenses.
Click these articles for additional, pertinent details:
The Lowdown on Education Tax Breaks
Thank you. Even if I count the Series EE bonds as income, wouldn't I still be below the $12,000 needed before paying federal income tax, so it wouldn't matter? I have $8500 in wages plus $600 in interest, so below $12,000 and should get all my federal taxes withheld back
it would matter.
when you are a dependent of your parents, your standard deduction is earned income + $350, not to exceed $12,200.
so in your case, you'd pay tax on $250 of the bonds....
NCPerson said " if Box 1 on the 1099Q is less than your qualifying expenses, just keep the records that document your approach stored away as there is no need to submit the 1099Q on your tax return/. "
Why doesn't Turbo Tax do that for you? If you entered more qualified educational expenses that you received in 1099Q distributions why is Turbo Tax including the 1099Q money as income?
Q. Why doesn't Turbo Tax do that for you? If you entered more qualified educational expenses that you received in 1099Q distributions why is Turbo Tax including the 1099Q money as income?
A. TT assumes you (or your parents) are claiming a tuition credit and reduces the amount of expenses available for the 1099-Q.
If you know your 1099-Q (box 1) is covered, by enough expenses, just don't enter it in TT.
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."
@mike740 You do not need to enter the 1099-Q, at all. If your (or 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. 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."
But, you may want to pay a little tax on the distribution, so that your parents can claim the tuition credit. Read on for a full explanation.
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Qualified Tuition Plans (QTP 529 Plans)
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
60%x600= $360
You have $240 of taxable income (600-360)
**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.
Hello -- good discussion on 1099-Q.
I ran into a strange scenario when entering 1099-Q info for my 2020 return. My federal tax refund DECREASED when I entered a (non-zero) value for box 2 earnings. Why did this happen? All of the 529 distributions (box 1) are for qualified educational expenses. I was expecting that entering form 1099-Q info shouldn't have affected my federal refund at all. Is it a bug?
Because of this, I am not entering any info for 1099-Q this year.
@Robert99Peters There's no bug. The details are just too complicated. You have to get all the entries "just right".
You used the right solution,.
Many thanks Hal_AI.
For my own edification, could you please elaborate on how to get the details of entering form 1099-Q just right? I suspect that this is happening to many parents with kids in college. I only noticed it because I saw my federal refund tracker tick down when I entered box 2 earnings in form 1099-Q. Let's just say that is "unnatural" for me to have a federal tax form and deliberately not enter the info during my federal return. I have no idea if this info will impact my state return...
Q. Could you please elaborate on how to get the details of entering form 1099-Q just right?
A. No. Too much detail, too many scenarios. Essentially you need to have some idea of what the output will be. Follow the education interview carefully.
In your case you know none of it is taxable. And the IRS instructions are "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return".
One common situation is that TurboTax used part of your dependent's college expenses to claim the Tuition credit, even if you are not eligible. 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.
Leaving off the 1099-Q does not impact your state form.
Part of your problem is watching that federal "refund tracker" before you've entered all the info. It ticked down when you entered income (the earnings in box 2 of the 1099-Q). It'll tick back up when you enter the offsetting expenses.
Due to a 12/30/20 withdrawal from a 529 plan needed to accommodate due date of my dependents Spring 2021 semester payment, the 1099-Q shows a distribution that is larger than education expenses for 2020. In effect, we took distributions for 3 semesters in 2020 and only paid 2. When the spring 2021 costs are introduced they far exceed the distribution as we are paying partially our of pocket.
How do we handle this when reporting the 1099-Q, the 1098-T and her other education expenses?
What you're saying is: you took a distribution in 2020 but didn't spent the money until 2021.
Technically, that's not allowed. A distribution must be taken in the same year as the money is spent.
You meet the spirit of the rules, spending the money on qualified expenses. This happens a lot. Some people take the attitude, I'll claim it and hope the IRS accepts my explanation, if audited.
Next year, you need to do better planning, so you meet the rules.
I agree that there is something wrong with the 1099-Q interaction with the education expenses and that is further impacted by qualifying for the education credit or not (in my case I am referring to the American Opportunity Credit). I am right on the line of that credit which is affected by how much we contribute to our traditional IRA. I'm not a tax expert (did alot of googling) but just answering the questions that Turbo Tax asks causes me to owe more taxes than I think is required. Also, Turbo tax doesn't seem to let you modify the 1099-Q, box 2 (taxable earnings), information without changing boxes 1&3.
Also, putting in the 1099-Q or leaving it out does affect the state taxes.
Perhaps Turbo Tax needs to look into this further.
@trishd55 said "putting in the 1099-Q or leaving it out does affect the state taxes".
Which state and how does it affect it?
Some states require an adjustment when you take a non-qualified distribution. But, you would only not enter the 1099-Q if you had a fully qualified distribution.
New Jersey. It includes the 529 as income when the 1099-Q is included in the federal information.
My 529 distribution is qualified (unless the education credit applies which is affected by my traditional IRA contribution putting me over or under the income limit for that credit). I don't want to 'double dip'.
I ran 6 different scenarios; with various different combinations of 1099-Q (included or not), Traditional IRA (max contribution or not); adjusting the taxable earnings on the 1099-Q when the education credit applied and then partial IRA contributions just under the limit to qualify for the education credit.
Turbo Tax does not change the taxable earnings on the 1099-Q for the scenarios in which it is input exactly. I tried to apply the $2,500 education credit to the taxable earnings but box 1&3 needed to change and I don't want that to be a red flag with the IRS. So I messed around with my IRA contributions to try to get to the income limit to a point where the answer is close to what I think it should be.
It seems that Turbo Tax should have been able to adjust that box 2 information accordingly knowing the education expenses that I had and whether I was eligible for the education credit?
Will do and know I will be speaking with the advisor who suggested and facilitated the withdrawal.
Soooo... if one was to intend to act in good faith, keep detailed record and ensure that it would all be reconciled in reporting 2022 distribution and expenses, what would be the best approach? Over reporting by including Spring 2021 expenses or under reporting what is listed on the 1099-Q?
To clarify this statement of my previous post: So I messed around with my IRA contributions to try to get to the income limit to a point where the answer is close to what I think it should be. Clarification: I utilized a partial traditional IRA deduction to get to the point where I am just over the income threshold to claim the education credit. That way I don't have to worry about the education credit causing the some of my 529 earnings to be unqualified. Then I don't need to input the 1099-Q numbers which Turbo Tax is calculating as fully taxable. Ideally, I could take my full IRA deduction and Turbo Tax would have some way of allowing for the adjustment of the taxable earnings in Box 2 of the 1099-Q.
Over reporting by including Spring 2021 expenses.
Or better yet, just don't enter the 1099-Q, at all.
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.
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."
Provide the following info for more specific help:
parent
yes
7335.00
blank
no
it's blank
no scholarships
5 distributions totaling 7544.93
5 totaling 3087.11
parent
no room and board
686
not much-part time job. I didn't put any of this on his tax return. This shouldn't matter if parent is the recipient, correct?
It depends on how much I deduct. I can make it fall just above or just below the $180,000 cut off.
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. This is not true in my case. Turbo Tax enters the info from box 2 without accounting for the expenses.
On form 1099-Q, instructions to the recipient reads: ".... You must determine the taxability of any distribution." Isn't Turbo Tax supposed to help us do that when we answer the questions?