Solved: If I enter my 1099-Q and 1098-T I end up owing taxes, but my college 529 plan is suppose to be tax-free. Why is this?
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If I enter my 1099-Q and 1098-T I end up owing taxes, but my college 529 plan is suppose to be tax-free. Why is this?

 
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Level 4

If I enter my 1099-Q and 1098-T I end up owing taxes, but my college 529 plan is suppose to be tax-free. Why is this?

The education section in the program may tax the distribution if the credit is worth more than the tax on the distribution. You have the option of changing this if you'd like to. If the 1098-T is entered first in the program, the expenses will be applied to a credit, and you need to change that allocation manually. 

Return to the "Education Information" sections and re-answer the interview question to get to the screen that asks how much of the expenses to allocate to the credit. 

1.      Go back into Expenses and Scholarships (form 1098-T) under Deductions & Credits and click Edit

2.      Click Edit next to the student's name and continue until you get to the "Here's Your Education Summary" screen (see screenshot) NOT "YOUR EDUCATION SUMMARY SCREEN" move forward from there to "Here's your Education Summary"

3.      Scroll down on this page and click Edit next to Education Information (see screenshot)

4.      Continue through the interview questions and the last screen will ask how much you want to allocate to the credits (see screenshot)

This screen reports the total amount of expenses you have to work with. If you do not want any of the distributions taxed, subtract the distribution amount from the total education expense and enter the difference. For instance, 10,000 expenses, 8,500 distributions, enter 1,500 and continue. You can also see how the change affects your refund/tax liability. If you are not eligible for any credits because of income limits, you can change the allocation to zero. 


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Level 4

If I enter my 1099-Q and 1098-T I end up owing taxes, but my college 529 plan is suppose to be tax-free. Why is this?

The education section in the program may tax the distribution if the credit is worth more than the tax on the distribution. You have the option of changing this if you'd like to. If the 1098-T is entered first in the program, the expenses will be applied to a credit, and you need to change that allocation manually. 

Return to the "Education Information" sections and re-answer the interview question to get to the screen that asks how much of the expenses to allocate to the credit. 

1.      Go back into Expenses and Scholarships (form 1098-T) under Deductions & Credits and click Edit

2.      Click Edit next to the student's name and continue until you get to the "Here's Your Education Summary" screen (see screenshot) NOT "YOUR EDUCATION SUMMARY SCREEN" move forward from there to "Here's your Education Summary"

3.      Scroll down on this page and click Edit next to Education Information (see screenshot)

4.      Continue through the interview questions and the last screen will ask how much you want to allocate to the credits (see screenshot)

This screen reports the total amount of expenses you have to work with. If you do not want any of the distributions taxed, subtract the distribution amount from the total education expense and enter the difference. For instance, 10,000 expenses, 8,500 distributions, enter 1,500 and continue. You can also see how the change affects your refund/tax liability. If you are not eligible for any credits because of income limits, you can change the allocation to zero. 


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