I would like to know how to compute Line-6 in Form 5329 in the following:
Let's say -
1. I had 1098-T of $500 in box1 as well as box5 (scholarship, grant)
2. I had 1099-Q from a 529 account of box 1 $800 and box2 $700
I understand that I will have to pay tax and additional 10% tax on the edu acct withdrawal.
My question is - can I exempt the full $ 500 from this additional 10% in line-6 of form 5329 ?
However, turbotax computes it as 700 * (500/800) meaning the proportionate amount from the earnings
and allows me to exempt only $437.50(438) as the amount exempt from 10% tax.
I tested the same scenario in TaxAct but that software simply asks me to manually enter the line-6 5329.
It does not even to attempt to compute that automatically.
I checked the instructions for Line-6.
Could someone give me pointers on where this is explained by IRS ? What is the correct calculation ? Is it full or proportionate ?
Q. Can I exempt the full $ 500 from this additional 10% in line-6 of form 5329 ?
A. No. TurboTax is doing it correctly and $438 is the correct amount for line 6 of form 5329.
Your $500 scholarship only reduces the box 1 amount ($800) to be used in the calculation.
700 * (500/800) = $438 is correct.
Remember that the 1098-T only reports Tuition. If you had other Education Expenses to add, you may cover the $500 distribution reported on the 1099-Q.
If that applies, you wouldn't need to enter the 1099-Q in your return.
Q. Can I exempt the full $ 500 from this additional 10% in line-6 of form 5329 ?
A. No. TurboTax is doing it correctly and $438 is the correct amount for line 6 of form 5329.
Your $500 scholarship only reduces the box 1 amount ($800) to be used in the calculation.
700 * (500/800) = $438 is correct.
Thanks. In this particular scenario, there is no other educational expenses.