The 529 distribution that paid my son's tuition was paid directly to the school, and my son was the recipient of the 1099-Q. The distribution i had paid to me to cover his books was sent to me. Do I claim both of these in my return? My son has no income--no job.
Obviously you qualify to claim the student as your dependent, and are doing so. Therefore the parent will claim all education expenses to include tuition paid, scholarships, grants and the 1099-Q. The fact your son's SSN is on his 1099-Q is okay, since your son is your dependent, and is listed as such on your tax return with his SSN. You the parent will also report the 1099-T, if the student received one.
Just to be clear, the last part of the answer should refer to 1098-T (not 109"9"-T). (Unless there really is a 1099-T; I'm just a college student's parent, not a CPA : )
I sometimes get the digits between a 1098 and 1099 mixed up. But yes, it's a 1098-T.
Carl, my situation is a little complicated - My son who I claim as a dependent, started college (state school) in 2014. We have two 529 plans for him, one pre-paid tuition and one savings. In 2014, the pre-paid plan paid my son’s tuition and fees and sent the funds directly to the college. I paid everything else out-off pocket and claimed and received reimbursement from the 529 savings account. My son got a 1099-Q for the prepaid portion and I got a 1099-Q for the portion I claimed.
I am using TurboTax and I claimed a full $2,500 American Opportunity Tax Credit (AOTC), knowing that some of the earnings of the distributions will be subjected to tax. The Software generated one Form 5329 under my name with a taxable amount calculated off my 1099-Q; it did not have one for my son although the 1099-Q Summery worksheet for him indicates a taxable amount for the earnings from the pre-paid under his name. Since Turbo Tax did not generate a Form 5329 for my son (nor included his taxable amount in my Form 5329), does this mean that my son has to file a return (he does not need to otherwise) for this taxable event?
On the account you received reimbursement from, who is the custodian of that account, and is your son the NAMED beneficiary on that account?
Carl, thanks for your quick response. I am the owner of that 529 savings account which I received reimbursement from, and yes my son is the NAMED beneficiary of that account.
For this, either of you can claim it then. If your son claims it, then when the student does their tax return, the student "MUST" select the option for "I can be claimed on someone else's return". Most likely, 100% of it will be taxable to the student, and it will be taxed as the parent's higher tax rate too.
Do note that since you paid "out of pocket" expenses, if you work through the Education section in the order it is designed to be used in interview mode, then after you enter all the 1099-Q's, in the expenses section you will specifically be asked how much was spent on room and board. That will offset the taxability of the savings 529 plan. I'm not sure, but I "think" that will also reduce your AOC claim.
If you do NOT work through the Education section in interview mode the way it is designed, then you will NOT be asked for room and board expenses, and that will INCREASE THE TAXABILITY of the 529 savings withdrawal.
I went through the interview mode and entered specific expenses including room and board. The taxable portion of the earnings from HIS 1099-Q ($894) is not added to my 1040, Line 21 (Other income) in Turbo Tax; it is completely ignore on my return. How do I add this amount to my 1040?
There may be other expenses you claimed that it applies to. For example, books and lab fees. I'm sure that the cost of books alone exceeds $894. Generally, the cost of books is not included in amounts paid directly to the school. So check/confirm that.
I'm having the same situation. I have properly entered expenses. The 1099Q worksheet is properly calculating a taxable amount of both 529 distributions but turbotax is only including one of the 1099Q taxable amounts on 1040 line 21. The other is ignored by turbotax. I claim my son as a dependent. Please advise. It doesn't seem right to ignore the taxable portion of the second 1099Q but I can't figure out how to get turbotax to include both?
Generally, you *have* to work through the education section from start to finish, the way it's designed and intended to be used. Otherwise, in my personal experience with it back when my kids were in college, the program does not do the math correctly. Now I myself never had to deal with more than one 1099-Q a year. So it is possible there could be a program issue. Could you please work through the education section as advised above? Then report back here with your results.
Note that you are not done with the education section until you have reached a screen with a DONE button on it, and clicked it, and are returned to the list of items under the Deductions & Credits tab.
The below is provided just as an FYI, as you probably already know it.
1099-Q Funds
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, 529/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.
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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.
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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. 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.
Was hoping to avoid the risk of "information overload". But it looks like you need to see "the whole picture" to understand all this. Took me awhile to get it too, back when my kids were in college.
College Education Expenses
Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:
- Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*
- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.
Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.
Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”. The first one indicates a choice. The second one provides no choice.
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited institution and:
Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a half time student) and:
the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)
Then:
The parents will claim the student as a dependent on the parent's tax return and:
The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:
The parents will claim all educational tax credits that qualify.
If the student will be filing a tax return and:
The parents qualify to claim the student as a dependent, then:
The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option ieven f the parent's qualify to claim the student as a dependent, and the parents do not claim them.
Now here’s some additional information that may or may not affect who files the 1098-T. If the amount of scholarships/grants exceeds the amount of qualified education expenses, the parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.) Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.
In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.
If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.
If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.
Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6200, then the student should file a tax return so as to get those withheld taxes refunded.
1099-Q Funds
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.
Adding a related question for anyone who can answer:
We have 2 kids in college, each kid has two types - the prepaid and the "savings account" type - and I am the owner of all (both kids are beneficiaries). One kid is 22 and attending a state university, received their own 1099 Q because it was part of the prepaid program. One kid attends an out-of-state university recognized by 529 as "in-state" by the Academic Common Market. Both are our dependents. When we go through the education section of Turbo Tax it requires us to select one or the other kid as a beneficiary, can't select both. The effect is that we are taxed on the total withdrawal for both kids from 529, but only receive credit on expenses for one kid.
Figure there are other parents out there with more than 1 kid in college, and may have an solution. Does anyone know a workaround for this situation?
Thank you
"One kid is 22 received their own 1099 Q". You do not enter that 1099-Q, on your return. You do not say who's name the 2nd kid's 1099-Q is in.
For 529 and prepaid 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.
**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."