Is 529 Distribution BILLED and PAID in 2021 for Spring 2022 Semester a Qualified Distribution?

[Darth-Poco-Brea]

Daughter started college in 2021 (at least half time), and I'm paying using 529.

Daughter is RECIPIENT of 1099-Q (distributions directly to school).

Total 529 distributions for 2021 are $9088.84, including $4063.08 for Spring 2022, which is not shown on 1098-T because it was paid late in Dec 2021.

Since this $4063.08 is not shown on 1098-T, is the earnings on this amount considered non-qual distribution subject to tax and penalty?

If non-qual, does my daughter have to file return to pay? Is there a way to put the money back into the 529?

[JillS56]

No, they are not reported as earnings.   The 1099-Q does not have to be reported on your or your daughter's tax return.   If the total amount of qualified education expenses is equal to the amount of the distribution from the 529 Plan, then you do not have to do anything with your 1099-Q except to keep it with your tax papers.   You only need to report the 1099-Q when the 529 distribution is less than the total amount of tuition or if the amount is in excess of the tuition reported on the 1098-T.   

I the 529 distribution was less than the amount of the tuition and scholarships reported on the 1098-T then you may qualify for an education credit.    If the 529 distribution is more than the amount of tuition less scholarships, then the excess distribution has to be reported as income.   

In your case, the funds were used to pay additional tuition that had not been reported on the 1098-T.    

[Darth-Poco-Brea]

I've read a lot of conflicting answers to this, so just want to make sure I'm clear:

"You only need to report the 1099-Q when the 529 distribution is less than the total amount of tuition or if the amount is in excess of the tuition reported on the 1098-T."   

In my case, the 1099-Q amount IS in excess of tuition reported on 1098-T because the school (apparently) did not receive/post payment sent in late Dec 2021.

So the  fact that I paid for Spring 2022 tuition from 529 in 2021, but it does not show up on the 1098-T, the IRS should not give me grief about it?

[JillS56]

 Yes, the only time you need to report the 1099-Q is if the amount of the distribution is less than the total qualified education expenses so that you might be eligible to still receive the education credit or when the distribution is in excess of the amount of qualified education expenses.

Yes, the fact that you paid for Spring 2022 tuition from 529 in 2021, but does not show up on the 1098-T, the IRS should not give me grief. I recommend that you keep the proof of payment in December 2021 with your tax papers in the event the IRS sends a letter you can prove the total of your payments for 2021.

[Hal_Al]

Q.  Is 529 Distribution BILLED and PAID in 2021 for Spring 2022 Semester a Qualified Distribution?

A. Yes.

Q. Since this $4063.08 is not shown on 1098-T, is the earnings on this amount considered non-qual distribution subject to tax and penalty?

A. No

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. You claim the tuition credit, or a tax free 529 plan distribution based on your own financial records, not the 1098-T. 

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! 

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."