I am not eligible for a tuition and fees deduction/education credit. Turbotax is deducting $10000 from eligible expenses for 529 plan. Is this for the credit ??

[prehlad]

In the student information worksheet, Turbotax reduces my 529 qualified expense by a scholarship and by $10000 (line 17 - used for credit or deduction).  I am not eligible for a credit or deduction, so this appears to be an error.  Am I missing something?

EDITED  2/23/19 TurboTax DOES deduct the full credit amount even if you are not eligible. Disappointed that this KNOWN ERROR is still not fixed a year later. 

[MarilynG · Accepted solution]

Yes, you are correct that the 10K adjustment is for a credit/deduction.  

If your 1099-Q distribution was used for Qualified Education Expenses, you are not required to enter it in your return.

Click this link for more A Guide to 1099-Q. 

Also, if you received a 1098-T and are not qualified for an Education Credit, you don't have to enter it in your return either.   

It there is Excess Scholarship shown on your 1098-T the student can report the 1098-T in their return (if they are required to file a return).

[Edited 03/20/2020 | 7:24 PM]

[prehlad]

Thanks - I spent 45-60  minutes on the phone asking 3 different people to get an answer.  They would not agree that it is a programming error - even though it clearly is.  I am disappointed to see that its been a known error for years and not fixed.  What a waste of time - mine and theirs.  This is the second error I've come across this year.  Pretty disappointing.   I've used turbotax for years, but may need to explore other options.  FYI- they had me override the $10000 on the student worksheet and set it to zero which fixed the problem.

[dmtobin]

Thanks for confirming my suspicion that the education expense "optimizer" has a flaw in it.     

I too had qualified educational expenses (on 1098T) that exceeded my 529 distribution (on 1099Q).  So it didn't make sense that TT said some of my 1099Q distribution was taxable.

In my case, the TT Optimizer wanted to "set aside" nearly $8000 in education expenses to apply toward an education deduction and/or credit that it ALREADY TOLD ME I DID NOT QUALIFY FOR.     Not very optimal... eh?

You simply need to override (reduce) the automatically-calculated dollar amount in "Used for Credit or Deduction" (Worksheet Line 17) until your "Adjusted Qualified Expenses" (Worksheet Line 20) exceeds your 1099Q distributions.  Result -- No more 1099Q tax!

[jennifer5]

I am having the same issue.  I have spent hours and one useless support call with no luck.  I do not qualify for an education deduction or credit.  TT has told me this, and wants me to continue with the input of my education expenses so that I may avoid taxable income on excess Qualified Tuition Program distributions.  Makes sense, right?  However, my total Qualified Education Expenses are being adjusted on the 1099-Q worksheet.  I'm assuming this is related to the credit, THAT I'M NOT ELIBLE FOR.  I'm hesitant to override, but if that's the solution, then so be it.  Can someone explain exactly where in the forms view to make the overrides?  I want to make sure everything flows correctly.

[dmtobin]

To make the override in Forms view:
  - Select "Forms" from View Menu
  - In the Forms list, select "Student Info Wk" for the person who has the eligible education expenses
  - In that worksheet, scroll to Part VI, Line 17:  "Used for credit or deduction".   Look specifically at the value in the 5th column, which falls under "Higher Education Expenses for 529 Plan"
  - Override (reduce) that value such that Line 20 ("Adjusted qualified expenses") is greater than your 529 distribution.

[bmwhitetx]

You shouldn't make this $0 by going into the forms. Instead edit this in the Education Information section of step-by-step by following TurboTaxMarilyG advice above. Note if you are claiming the American Opportunity credit, you enter $4000 since you can't double-dip 529 and American Opportunity Credit. Same goes for Lifetime Learning which is up to $10,000. Really, TT should fill in these amounts based on what credit you are getting but they don't.

[jennifer5]

You shouldn't make this $0 by going into the forms. Instead edit this in the Education Information section of step-by-step by following TurboTaxMarilyG advice above. Note if you are claiming the American Opportunity credit, you enter $4000 since you can't double-dip 529 and American Opportunity Credit. Same goes for Lifetime Learning which is up to $10,000. Really, TT should fill in these amounts based on what credit you are getting but they don't.

**I think that's applicable only if you're using Turbo Tax Online.  I am not.  I have the desktop version and this option isn't available.  Overrides on the worksheet page seems to be the only answer.  I have worked with TT customer support and even though I thought I was getting somewhere with them, their communication on the issue/solution just dropped.  A diagnostic of my return was performed on 2/2 to send to IT and I haven't received any further communication.  I believe it's a programming error but they fail to acknowledge it.  Very frustrating.

[pareto]

Thanks. I was able to change Part VI line 17 by manually replacing the incorrect "10,000" entry with "0." The original answer, posted last year, indicated TurboTax would not accept this correction, but now it does (2/19/19).  Would be nice if they fixed the programming error in the first place. I spent more than one hour on this.

[prehlad]

Really disappointing that Turbo tax has not fixed this known error

[twassum]

Thanks for the confirmation.  I was just about to submit this issue as I've had to do this override for at least 2 years.  But I now see the issue has been outstanding for that long... agree it's disappointing this has not been fixed.

[Erik82]

Appreciate knowing others are still fixing this manually.  I'm sure others share my expectations that TT will fix this for 2019 ...

[cj5]

Yep, ran into the same issue just now with the desktop version. What a waste of about 2 hours trying to figure out the problem.

[L-P-]

I am using the online version and also ran into this problem.  Our AGI is too high for taking any credits so I set " Amount Used to Calculate Education Deduction or Credit" to 0.  But this only reduced half of the increased tax after I entered 1099Q, but not all.  Is there anything else I should try?  Thanks!

[L-P-]

I am using the online version and also ran into this problem.  Our AGI is too high for taking any credits so I set " Amount Used to Calculate Education Deduction or Credit" to 0.  But this only reduced half of the increased tax after I entered 1099Q, but not all.  Is there anything else I should try?  Thanks!