How to understand what part of ESA distribution is taxable even though it was fully used to pay tuition ?

[praasppn]

I got an ESA distribution to the exact amount of the college(not full-time) tuition fee. However when I entered this info in turbotax, I see that about 21% of distribution gets added to income in Schedule 1 form. I see some calculation on how this was arrived at. But can someone explain me this ? I was under the impression that if I use the distribution fully for a qualified expense like tuition, I should not get taxed.

Is there some easy guideline on how this is computed so that I can withdraw lesser than the actual tuition fee paid so that I do not get taxed at all.

My income is very low and I had some unemployment benefit in the year.

[ColeenD3]

Did you link your 1099-Q with your 1098-T for your tuition payments? Did you have a distribution in one year and tuition expense in another?

If you know, for sure, that you have enough qualified expenses to cover the entire distribution, just don't enter the 1099-Q, at all. There is no actual IRS form that it goes on.

Otherwise, after entering the 1099-Q, you have to enter enough qualifying expenses to offset the box 1 amount. You will need to visit the education section to enter the tuition to offset the 1099-Q.

Follow these steps. Go to:

• Federal Taxes
• Deductions and Credits
• Education
• Expenses and Scholarships

If you don’t use all of the distribution for qualified expenses, you have to include the portion of earnings not used for qualifying expenses as taxable income. For example, if your 529 plan has 85 percent contributions and 15 percent earnings and you take a non-qualified distribution of $1,000, $150 of that distribution is considered earnings and therefore is taxable income.