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rpellegr
Returning Member

1099-Q and 1098-T do not match

Hi - trying to wrap things up but getting tangled around this 529 silliness.  Here is the situation:

- 529 plan withdrawls are summarized accurately on the 1099-Q

- the last withdrawl was on 12/20/19 for the Spring 2020 semester payment

- the college did not recognize the payment until early January 2020

- the college did not include the Spring 2020 payment in the 2019 1098-T

- 1099-Q and 1098-T numbers do not match

 

Please suggest how I should account for this while filing.  TurboTax is indicating that the excess withdrawls are taxable.

 

thanks,

 

Rob

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11 Replies
Hal_Al
Level 15

1099-Q and 1098-T do not match

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.  You claim the tuition credit, or report scholarship income, or claim the 529 plan earnings exclusion,  based on your own financial records, not the 1098-T. 

 

The money was sent to the school in 2019. It counts as a 2019 payment for purposes of  the 529 plan distribution.

 

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. 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.

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." 

rpellegr
Returning Member

1099-Q and 1098-T do not match

thanks for the quick response.  a couple of follow-ups for your consideration:

- the 2019 529 distributions all went directly to the college and paid the full educational expenses for 2019 and Spring 2020

- does that mean i should include Spring 2020 expenses when I enter the expenses according to my records (which would match with the 1099-Q info)?

- does that mean that TurboTax will enter nothing about the 1099-Q in the tax forms?

 

Also... about the American Opportunity Credit

- I am thinking to NOT claim my son as a dependent anymore (he is essentially >50% on his own support)

- based on his lower income should he qualify for the credit?

 

thanks again!!

 

Rob

 

Hal_Al
Level 15

1099-Q and 1098-T do not match

Q,  does that mean i should include Spring 2020 expenses when I enter the expenses according to my records

A. Yes, if you are claiming the 529 plan earnings  exclusion  (1099-Q). 

 

Q. does that mean that TurboTax will enter nothing about the 1099-Q in the tax forms? 

A. Yes. You don't need to enter the 1099-Q, at all.  But if you do, it goes on you son's return, not yours (your son is the "recipient" since the money went directly to the school).

 

Q. based on my son's  lower income should he qualify for the American Opportunity Credit (AOC)?

A. Simple answer: No. But, it's complicated. If he is not your dependent,  he does qualify for the non-refundable portion (up to $1500, not $2500) of the AOC. So, he would have to have some tax liability to get any benefit. 

 A full time, unmarried student, under age 24, is only eligible for the refundable portion (up to $1000) of the American Opportunity Credit if he supports himself by working (earned income). You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit. 

 

Q.  I am thinking to NOT claim my son as a dependent anymore (he is essentially >50% on his own support)

A. It's unlikely that he provides more than half his own support if he's paying for college with a 529 plan. The treatment of expenses paid with distributions from Sec. 529 plans and Coverdell ESAs in the support test is uncertain because of the dual nature of these college savings vehicles and a lack of IRS guidance. The consensus among tax experts is that it is parental support, because the parent is the owner of the plan.  It would be helpful to your case it the student is the "recipient" rather than the parent.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

Even if you son qualifies as your dependent, you are allowed to forego claiming him (and the $500 other dependent credit) to allow him to claim the non-refundable portion of the AOC.

-

 

rpellegr
Returning Member

1099-Q and 1098-T do not match

thanks again for the great input.  here are some example numbers which may help:

- son earned income $20k

- lived at school and then rented apartment

- education expenses paid fully by 529 plan distributions

- 1099-Q $30k ($10k/semester = 2019 Spring + Fall, 2020 Spring)

- 1098-T box 1 $25k, box 5 $5k (= net $20k tuit / year)

 

So...

- should he file independently?

- should he enter 1099-Q (2019 and part 2020)?

- should he enter tuition expense 1098-T info (2019 only) or enter 1099-Q numbers?

- should he claim the tuition credit?

 

Or...  your best suggestion based on the info above.

 

Thx!

 

Hal_Al
Level 15

1099-Q and 1098-T do not match

It depends on what " lived at school and then rented apartment" means.  Being away at school, even living off campus, is considered only a temporary absence from the parent's home.  For tax purposes, he still lives with the parent.  However, if he moved out permanently and did so before 7/2/19, then he did not live with the parent, for more than half the year and cannot be a qualifying child dependent.  The $20K earned income disqualifies him from being a standard ("qualifying relative") dependent (there is no income limit for a qualifying child).  So, he can file independently.

 

He can claim the tuition credit, but as earlier explained may not get the refundable portion.

 

He probably does not need to enter the 1099-Q at all if he has  enough other expenses ( room and board and books & computers) to cover the $30K  on the 1099-Q.  Students living off campus can claim the lower of actual rent & food cost or the school's R&B charge for on campus students.

If you need to count some of the  Spring 2020 tuition to get to $30K, You will have  to do the math to see how much you need to reduce what you claim in 2020. 

 

rpellegr
Returning Member

1099-Q and 1098-T do not match

Thank you...

- he did NOT move out permanently

 

Does this prevent him from filing independently?

Hal_Al
Level 15

1099-Q and 1098-T do not match

 

Q.  Does this prevent him from filing independently?

A. Simple answer yes.  Or more accurately, in my opinion, he must state he can be claimed as a dependent.  He does not  provide more than half his own support, he lives at home, and he was a full time student under 24.

 

But, as previously indicated, the IRS has not provided guidance on how 529 plan distributions are considered for the support test.  The consensus is that it is parental support since the parent is the owner of the plan.  You COULD take the opposite position, since he was the "recipient" of the 1099-Q (the distribution went directly to the school. 

If he does claim himself, be aware of the  support question in the personal info interview.  It asks if he supported himself in 2019.  But the fine print  asks if he provided more than half his own support with EARNED INCOME.  Answer no.  Even though he  is claiming he provided more than half his own support, it was not with earned income.  This question determines whether he gets the refundable portion ($1000) of the AOTC.

emmalouhertel
Returning Member

1099-Q and 1098-T do not match

Tuition for USC is due on January 6th. Because of the New Years holiday with banks I pulled the money from the 529 On Dec 31st. Now my 1098-T for 2021 doesn't reflect the tuition due 6 days after the year change and Turbo Tax has calculated taxes are owed.

 

You state you do not need to add in the 1099-Q as long as you have the paperwork to justify the Tuition payments and other expenses (room, board, books).  If I do not add the 1099-Q the student receives fed tax back. If I add it we owe money.  

 

Please confirm that I do not have to add in the 1099-Q

KrisD15
Employee Tax Expert

1099-Q and 1098-T do not match

Yes.

The consensus of most TurboTax education specialists is that you MAY ignore entering the 1099-Q. 

 

Previous TurboTax answer

 

Going forward, you can have the funds transferred directly to the school.

The 1099-Q does not need to be entered IF it does not create a tax liability. 

Technically you made a distribution in tax year 2021 for expenses paid in 2022. 

The TurboTax program won't let you enter it tax-free without matching expenses and you didn't pay the matching expenses until 2022. 

 

The distribution may be used tax-free for paying room and board, can you apply those expenses for tax year 2021? 

 

The INTENT is to allow the distributions to be tax-free when used for education expenses. The instructions allow a credit to be carried back, but not forward. So a distribution made in 2022 could be applied to 2021, but the instructions do not address applying a distribution made in 2021 to expense paid in 2022. 

 

If you don't report the 1099-Q, be sure you are careful about following the numbers trail since there will be more expenses reported on the 2022 1098-T than you would be allowed to claim since you are using part of that amount on the 2021 distribution. 

 

[Edited 2/21/2022 I 7:11pm PST]

 

 

 

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Hal_Al
Level 15

1099-Q and 1098-T do not match

@emmalouhertel  We cannot confirm, with certainty, that you do not have to add in the 1099-Q.  Technically, you do not meet the requirement that the 529 distribution should be made in the same year as the payments to the school were made.  I'm of the opinion that you meet the the intent of the 529 law.  If it were me, I would just not enter the 1099-Q and hope I could convince the IRS if they contact me.  You distribution and payment are less than a week apart. Try to do better next year.

 

@KrisD15  said "The instructions allow a credit to be carried back, but not forward".  Do you have a reference for that?  That's not my understanding. 

KrisD15
Employee Tax Expert

1099-Q and 1098-T do not match

I am referring to a refund which in a way (in my mind) acts similar to a distribution, since it covers expenses from the PREVIOUS year. 

 

 

"Refunds received after 2021 but before your income tax return is filed. If anyone receives a refund after 2021 of qualified education expenses paid on behalf of a student in 2021 and the refund is paid before you file an

income tax return for 2021, the amount of qualified education expenses for 2021 is reduced by the amount of the refund."

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