Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
daltonfam5
New Member

I used 529 dist to cover some of my dependent daughter college expense and paid remaining due in cash. TT is telling me 529 is taxable. Why when dist was less than cost?

 
1 Best answer

Accepted Solutions
MichaelDC
New Member

I used 529 dist to cover some of my dependent daughter college expense and paid remaining due in cash. TT is telling me 529 is taxable. Why when dist was less than cost?

The most common reason this happens is that you didn't work that 1099-Q through the education section completely when you initially entered it in the federal taxes. If you have any other details regarding this question, please feel free to post them in the comment section. 

A little background on the way taxes and TurboTax work here

First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Next, 520/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over that are taxable, then while the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants, and 1099-Q funds.

 

View solution in original post

1 Reply
MichaelDC
New Member

I used 529 dist to cover some of my dependent daughter college expense and paid remaining due in cash. TT is telling me 529 is taxable. Why when dist was less than cost?

The most common reason this happens is that you didn't work that 1099-Q through the education section completely when you initially entered it in the federal taxes. If you have any other details regarding this question, please feel free to post them in the comment section. 

A little background on the way taxes and TurboTax work here

First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Next, 520/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over that are taxable, then while the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants, and 1099-Q funds.

 

View solution in original post

Dynamic AdsDynamic Ads
Privacy Settings
v