Qualified Tuition Program Computation of Taxable Distribution

[student2025]

I am trying to figure out how to calculate the Adjusted Qualified Higher Education Expenses applied for Purposes of Regular Tax that is on the Form 1099-Q page 3 printed from Turbo Tax.  This amount is different than the amount used for purposes of 10% additional tax.  I have entered all of the 1098-T as well as 1099-Q into my return and for some reason the Page three form is calculating an adjusted amount which is considered Additional Income from Schedule 1, line 10 that increases my AGI.  However this income is not taxable as the amount was used to pay for education expenses.

I support myself so the 1098-T and 1099-Q are on my return.

1098-T 

Box 1 $13,331.62

1099-Q

Box 1 - $13,711.76

Box 2 - $5,583.74

Box 3 - $8,128

Additional expenses are $895.

Additional income that is not taxed is $1,419 as the Adjusted Higher Education Expense applied amount is $10,227 (this is the number I am trying to figure out how to calculate)

[AmyC]

No, let's get this straight. You have:

• 1098-T tuition only, no scholarships
• plus other qualified expenses - 529 qualified Room and Board  and Qualified Education Expenses - Internal Revenue Service
• is greater than the 1099-Q distribution.

You need to:

• move as much 529 income to room and board as possible
• claim the education credit, if qualified. See What You Need to Know about AOTC and LLC
• remove the 1099-Q from your return since it isn't taxable.

IRS Publication 970, Tax Benefits for Education states:

Page 45: Don't report tax-free distributions (including qualifying rollovers) on your tax return.

[Hal_Al · Accepted solution]

Q. The Adjusted Higher Education Expense applied amount is $10,227 (this is the number I am trying to figure out how to calculate)?

A. $13, 332 + 895 = 14,277 QEE. $14,277 - $4000 (used to claim the AOTC) =  $10,227 AQEE

TurboTax is doing it right, with the limited info you input.  You need to enter your room and board expenses, even if the student lives off campus or at home. You must be half time or more to claim R&B. 

$13, 712 (529 distribution) - 10,227 AQEE = $3485 is all the R&B you need. It's low enough, that you can assume you have that much.

Just don't enter the 1099-Q.  Enter the 1098-T and claim the AOTC (American Opportunity Tax Credit).

The 1099-Q is  only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you can. 

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 don’t need it). 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.

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”.
3. "IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form." 

[Hal_Al]

"I support myself so the 1098-T and 1099-Q are on my return."

Maybe not. For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student). 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, if it even needs to be reported. See above.  The recipient's name & SS# will be on the 1099-Q. 

2nd issue: 

A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit. 

You cannot claim the (up to) $1000 refundable credit if you are, or can be, claimed as a dependent by someone else.

Reference: Line 7 instructions for form 8863.

https://www.irs.gov/instructions/i8863#en_US_2024_publink53002gd0e674