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I filed my taxes & claimed my college daughters' 1098-T's. For their taxes I need to enter 1099-Q's. How do I show it went to tuition if I already claimed their 1098-T?

Can I only include room and board and books on their returns, but not the tuition? Wouldn't it look like we didn't spend it all on education expenses?
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3 Replies
Hal_Al
Level 15

I filed my taxes & claimed my college daughters' 1098-T's. For their taxes I need to enter 1099-Q's. How do I show it went to tuition if I already claimed their 1098-T?

Q. How do I show it went to tuition if I already claimed their 1098-T?

A.  You enter the 1098-T on her return too. You can't claim the tuition on your tax return and claim the same tuition $ on her return to keep the 1099-Q tax free.  No "double dipping."

But, when you also  enter the 1098-T, on her return, TT will give you a screen asking how much tuition was used (on the parent's return) to claim a tuition credit.  TT will usually pre-populate that box with $4000. 

 

That said, be forewarned, the TT interview is messy.  It pays to have a idea of what the out put will be.  Better yet, if you know there were enough expenses, after deducting what was used for the tuition credit,  to cover the 1099-Q, then just don't enter the 1099-Q (or 1098-T) on her return. 

 

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. 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. 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 also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

References:

  1. 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." 
  2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.

__________________________________________________________________________________________

 

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

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 American Opportunity Credit (AOC or AOTC) is 100% of the first $2000 of tuition and 25% of the next $2000 ($2500 maximum credit). 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 (on the recipient’s return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

There is  $1120 of taxable income (on the recipient’s return)

 

**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.

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." 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Most people come out better having the scholarship taxable before the 529 earnings. 

 

I filed my taxes & claimed my college daughters' 1098-T's. For their taxes I need to enter 1099-Q's. How do I show it went to tuition if I already claimed their 1098-T?

Thank you for your help.  Just to clarify, is it ok that I claimed my daughter's 1098-T, and she does not enter the 1099-Q, as long as we have documentation showing that it all went to college expenses if we're ever questioned by the IRS? 

Hal_Al
Level 15

I filed my taxes & claimed my college daughters' 1098-T's. For their taxes I need to enter 1099-Q's. How do I show it went to tuition if I already claimed their 1098-T?

Q. Just to clarify, is it ok that I claimed my daughter's 1098-T, and she does not enter the 1099-Q, as long as we have documentation showing that it all went to college expenses if we're ever questioned by the IRS? 

A. Yes.

 

At least two users have reported receiving a CP2000 letter, from the IRS, on 529 distributions. They replied that their child was in college and the distributions were for qualified expenses, which they listed, but they did not provide receipts.. They  later received a notices saying they were in the clear. Others (including me) have reported that just sending copies of school statements satisfied the IRS. We have noticed, here in this forum, that the number of reports of 1099-Q notices, from the IRS, has dropped off significantly in recent years.

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