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char1351
Returning Member

More confusion about 1098T and 1099Q forms

I have read through a few of the other topics related to 1098T and 1099Q forms and none have covered the scenario I am in. My son is a freshman in college. He has 4 different 529 accounts. He also had a part time job so he has a W2 from that. For all college expenses we paid them and then got reimbursement to us from the 529 account (no payments were made from the 529s directly to the schools). 

 

The problem is that the 1098-T was sent to my son and has his SSN on it. We cashed out one small 529 and the 1099Q from that came to us in his name with his SSN. Another 529 that we used for expenses sent us another 1099Q and it was sent to me with my SSN. 

 

I need some assistance to understand how to file all of this. I have seen posts saying it should all go on my taxes but others have said that they need to be filed on the taxes of the person that it was sent to (and whose SSN is on the form). Also not all of these expenses were paid directly to the school. We purchased a chromebook and some other eligible expenses (things like the orientation fee, other eligible supplies) that are not reflected on the 1098T the school sent us.

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2 Replies
Hal_Al
Level 15

More confusion about 1098T and 1099Q forms

Q. Is there a  problem  that the 1098-T was sent to my son and has his SSN on it?

A. No. The 1098-T can be entered on your return. If needed, it can be entered on both returns, with adjustments.  It is only an informational document. 

 

The 1099-Q is also just an informational document. 

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 which is only qualified for the 1099-Q)

   -$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. 

 

 

Hal_Al
Level 15

More confusion about 1098T and 1099Q forms

Provide the following info for more specific help:

  • Are you the student or parent.
  • Is the  student  the parent's dependent.
  • Box 1 of the 1098-T
  • box 5 of the 1098-T
  • Any other scholarships not shown in box 5
  • Does box 5 include any of the 529/ESA plan payments (it should not)
  • Is any of the Scholarship restricted; i.e. it must be used for tuition
  • Box 1 of on each 1099-Q 
  • Box 2 of   each 1099-Q
  • Who’s name and SS# are on each 1099-Q, parent or student (who’s the “recipient”)?
  • Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents.
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
  • How much taxable income does the student have, from what sources
  • Are you trying to claim the tuition credit (are you eligible)?
  • Is the student an undergrad or grad student?
  • Is the student a degree candidate attending school half time or more?
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