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I took a 529 plan distribution to pay for my son's college. I received a 1099-Q with box 6 checked. How can I avoid a tax liability here?

How can I show that the distribution was used to pay for college tuition and expenses?
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1 Reply
MargaretL
Expert Alumni

I took a 529 plan distribution to pay for my son's college. I received a 1099-Q with box 6 checked. How can I avoid a tax liability here?

First, determine if 529 funds exceed qualified expenses. Please see below for details... you may not have to report the form at all on your tax return:

If the distribution doesn’t exceed the amount of the student's qualifying expenses, then you don't have to report any of the distribution as income on the tax return. If the distribution exceeds these expenses, then you must report the earnings on the excess as "other income" on your tax return. Qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board, nothing else.

When the funds go directly from 529 plan to school, the student is the recipient, and the 1099-Q is reported on the student's tax return (regardless whose name/ssn is on the form)  If you received the money and then paid for school, you are the recipient and the form is reported on your tax return.

There may be two data entries for you college expenses:

1.  First enter 1099-Q reporting 529 plan distribution:

  1. Federal Taxes
  2. Wages & Income
  3. Scroll down to Less Common Income
  4. Select Miscellaneous Income, 1099-A, 1099-C
  5. Select Coverdell ESA and 529 qualified tuition programs (Form 1099-Q) follow the prompts.  Note qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board, nothing else.

2.  Then, work through Education section to qualify for an education credit (I'm assuming your son is your dependent)

  1. Federal Taxes
  2. Deductions and Credits
  3. Education 
  4. Expenses and Scholarships (Form 1098-T) - follow the prompts. You'll be asked for tuition and other qualified expenses
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