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davetax1999
New Member

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

 
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Accepted Solutions
Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

TurboTax uses parts of your dependent's college expenses to claim the Tuition credit. That reduces the amount that can be used to claim the  529 earnings, shown on the 1099-Q, as being totally tax free.

For more detail, see: https://ttlc.intuit.com/questions/3742999-i-entered-my-1099-q-and-my-1098-t-to-show-i-used-the-money...

If your income is too high to be eligible for a tuition credit, see the TurboTax FAQ for a work-around. https://ttlc.intuit.com/questions/4451709-why-is-the-529-distribution-from-my-1099-q-showing-up-as-t...


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21 Replies
Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

TurboTax uses parts of your dependent's college expenses to claim the Tuition credit. That reduces the amount that can be used to claim the  529 earnings, shown on the 1099-Q, as being totally tax free.

For more detail, see: https://ttlc.intuit.com/questions/3742999-i-entered-my-1099-q-and-my-1098-t-to-show-i-used-the-money...

If your income is too high to be eligible for a tuition credit, see the TurboTax FAQ for a work-around. https://ttlc.intuit.com/questions/4451709-why-is-the-529-distribution-from-my-1099-q-showing-up-as-t...


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mmkane
New Member

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

The links are broken in the message below.

Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

Qualified Tuition Plans  (QTP 529 Plans)

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 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)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (usually on the student’s return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)

 

**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.

 ***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.

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." 

Carl
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

My 529 earnings are being taxed. I'm the recipient and my son is the beneficiary.

That's not possible. On the 1098-Q "recipient" and "beneficiary" are the same. The owner of the SSN in the "recipient's TIN" box is the beneficiary recipient. That is the person that reports the 1099-Q on their tax return.

As explained elsewhere in this thread, I suspect you are the custodian of the account.

 

 

Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

@Carl  .

"I'm the recipient and my son is the beneficiary'' is possible and frequent.

"On the 1098-Q 'recipient' and 'beneficiary' are the same" UNLESS BOX 6 ON THE 1099-Q IS CHECKED.

 

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.

Carl
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

Thanks. Never paid attention to box 6 before.

 

8194Harlem
Returning Member

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

I am having the exact same experience. Fully qualified expenses are not offsetting the taxable portion of the 529.

Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

@8194Harlem  You say *Fully qualified expenses are not offsetting the taxable portion of the 529*.

 

Technically, that's not what you are after. You want fully qualified expenses to  offset  the distribution itself (box 1 of the 1099-Q).  What ever part is not offset is then used to calculate the taxable portion of the earnings (box 2). 

 

If you know none of it is taxable, then just don't enter the 1099-Q, in TurboTax.  See explanation above.

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. 

 

 

8194Harlem
Returning Member

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

The total qualified expenses plus 3 1098-T entered equals the total 529 distributions, yet, by entering it as directed, there is a difference of $800 in Federal Tax due. So you are recommending that I answer "no" to the question about whether I have received a 1099-Q, even though I have?

Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

Q.  So you are recommending that I answer "no" to the question about whether I have received a 1099-Q, even though I have?

A. Yes, but that assumes two things:

1. You have sufficient expenses to cover the box 1 amount.

2. There is no double dipping.  You are not  claiming a tuition credit or deduction based on the same expenses and/or those same expenses aren't covered by tax free scholarship.  See the longer reply above for details headed Qualified Tuition Plans  (QTP 529 Plans)

Jill21
Level 1

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

How do we know if turbo Tax is submitting the 1099Q on final tax papers BEFORE we hit submit and file?

Jill21
Level 1

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

I have read, and reread, and reread the explanation about double dipping. My question is - Will turbo tax reconcile the 1099Q and the 1098T for me? or do I have to somehow figure out all the numbers (bursar bill, scholarships, loans, fees, room/board, etc) with the 529 expenses?

MarilynG1
Expert Alumni

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

@Jill21 If your 529 distribution does not exceed qualified Education Expenses, you may not need to enter it in TurboTax.

 

Click this link for more info on 1099-Q.

 

You will need to figure out what 'Other Education Expenses' (books, fees, etc.) to add besides the Tuition shown on the 1098-T.  Room and Board can only be paid with 529 funds. 

 

As long as Box 1 is a larger amount than Box 5, you should be eligible for an Education Credit.  TurboTax is looking for 'out of pocket' expenses to make you eligible for the credit. 

 

Click this link for info on How to Enter a 1098-T

 

This Education Credit Calculator may help you. 

 

You can also request a Line by Line Review, since we can't see your return in this forum. 

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Hal_Al
Level 15

My 529 earnings are being taxed. I’m the recipient and my son is the beneficiary. What am I doing wrong? All distributions are being used for qualified educational exp

@Jill21 

Q. How do we know if turbo Tax is submitting the 1099Q on final tax papers BEFORE we hit submit and file?

A. TurboTax (TT)  prepares a student info worksheet and a 1099-Q worksheet.  Review both before submitting your return for e-file. 

 

Q. Will turbo tax reconcile the 1099Q and the 1098T for me?

A. Yes.  But, it's complicated and  it is dependent on your input.  It's helpful for you to have some idea of what the output should look like.  See my longer reply, above, for an example.  

 

Provide the following info for more specific help:

  • Are you the student or parent.
  • If, student, are you the parent's dependent.
  • Box 1 of the 1098-T
  • box 5 of the 1098-T
  • Does box 5 include any of the prepaid plan payments (it should not)
  • Box 1 of the 1099-Q
  • Box 2 of the 1098-Q
  • Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
  • Room & board paid. If you live off campus, what is school's R&B charge
  • Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers

 

 

 

 

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