1099Q - Parent is the recipient and dependent child is the beneficiary. The 1098T shows qualified tuition payment, but room and board are not included. How enter in TT?

[dep0sit99]

Ex. 1099Q gross distribution(line 1) = $15,480 and 1098T Payments received (line 1) = $9,687. There is a difference of $5,793. That is the exact amount that I paid for room and board. I need to know how and where to enter this in TT in the correct sequence so that I get advantage of any education credits and so I'm not taxed on the distribution. Also, How should I enter this on my son's tax form?

[KrisD15]

You need to know what you want to do, you can enter your income, then the 1099-Q, then the 1098-T.

Answer the interview questions in the education section. Enter the Room and Board you paid. 

If you click "Maximize my tax break" the program will do just that. 

You can't do both, allocate education expenses to a distribution AND a credit, but you might have a choice. 

If the student received any scholarships, that also needs to be factored in. 

Whomever the 1099-Q was issued to reports that income if that income is taxable. 

If scholarships are taxable income, the student reports that on their return. 

Your program will tell you if the student needs to claim taxable income. 

If it is scholarship income, that amount (only, not the entire 1098-T) is entered in the education section. 

Distributions can be entered as "Other Income" on the student's return if the 1099-Q was issued to them. 

Click here for IRS Pub 970 with many examples

[Hal_Al · Accepted solution]

Q.  I need to know how and where to enter this in TT in the correct sequence so that I get advantage of any education credits and so I'm not taxed on the distribution.

A. In your example, you have exactly the same amount of expenses (9687+5793 = 15480) as your 1099-Q distribution.  You can't have both a tuition credit and a totally tax free 529 plan distribution. You can not double dip (use the same expenses for both).

It's best to pay a little tax on the 1099-Q, so that you can claim the credit.

In TurboTax (TT), enter the 1099-Q,  at:

Federal Taxes Tab (Personal for H&B version)

Deductions & Credits

-Scroll down to:

--Education

  --ESA and 529 Qualified Tuition Programs (1099-Q

Later, enter the 1098-T, In TurboTax (TT),  at:

Federal Taxes Tab (Personal for H&B version)

Deductions & Credits

-Scroll down to:

--Education

  --Education Expenses

Follow the interview. When  you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use (usually $4000) or change it.

[dep0sit99]

Thank you! Your steps worked. My MAGI is above the maximum amount to qualify for the education credit, so there is no difference based on that variable. For some reason, until I followed the sequence of your steps, TT was not off-setting the off campus room/board that I paid out of pocket with the 1099Q distribution amount and it was taxing a portion of the earnings.

My son (the student above) needs to file federal. I was the recipient on the 1099Q and he was the beneficiary.  Does he need to declare anything from the 1099Q or 1098T?  Would he qualify for the educational credits, since I could not claim them?

[Hal_Al]

Q. Does the student-dependent need to declare anything from the 1099Q or 1098T o his tax return? 

A. No.  Do not enter them on his return, in Turbotax (TT). It'll just be confusing.

Q. Would he qualify for the educational credits, since I could not claim them?

A.  Simple answer: No.  He is not eligible for the refundable portion of the credit. If the student actually has a tax liability,  there is a provision to allow him to claim a non-refundable credit, but then the parent must forgo claiming the student's dependency and the $500 other dependent credit.  In your case, it would also mean you paying some tax on the 529 distribution to free up expenses for his credit. Since the AOC is  effectively 60% of the expenses (in this case), it's possible (but unlikely) that it might work out.  The only way to know is crunch the numbers.

[Carl]

The person whose SSN is on the 1099-Q is the one who will report it on their tax return. Period.

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.

[GRivera1]

This is confusing in TT because I am claiming my son on my return, but the 1099Q was distributed directly to school. So when 1099Q is entered in his return, and it goes to 1098T section, TT says 1098T needs to be entered on parents return as he is claimed as dependent. This is the same section where one would enter room and board, books, etc. TT gives impression this info should be entered on parents return.

[KrisD15]

Yes, it is confusing. 

Since you are claiming the student, please enter all education information/documents into your TurboTax program so that it can do the math. 

If there is any taxable income (from the 1099-Q or scholarships) your program will tell you how much the student needs to claim and how to enter it on his return. 

[Hal_Al]

@GRivera1 -

The 1098-T does get entered on  on both the parent's and the student's return, in your case.  

When you do his return, enter the 1099-Q first. Then enter the 1098-T. You will eventually reach the screen "amount used to claim the education credit"*. If TT has not prepopulated that with $4000 (assuming you claimed the maximum American Opportunity credit), you should enter (or change to) $4000.

TT will not try to give the tuition credit to your student-dependent, on his return, if you indicate, in the personal info section, that he is claimed as your dependent.

Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s . The alternate workaround is  to enter $4000 less than the actual box 1  amount, when you enter the 1098-T on the student's return or $4000 more in the box 5 amount.

* Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.

[Anonymous]

I had the same issue and Turbo Tax step by step process is not very intuitive.

Please note 1098-T is issued by the college in your Kid's name while 1099-Q is issued by your brokerage firm under your name even if the actual beneficiary is your kid.

Here are the steps you need to follow when you are dealing 1099-Q 529 Withdrawal to fund your kids college

Step 1) Please enter your Kid's 1098-T information in your personal return and make sure your Kid is included in your personal return as dependent. You can find 1098-T worksheet by directly searching 1098-T form in Turbo-tax (select Top menu -> Forms and then search->1098-T Wks)

Step 2)  After you have entered 1098-T Worksheet information, then enter 1099-Q information in your  personal return and select your kid as the beneficiary.

Once you complete these two steps, you will find 529 withdrawal is not treated as taxable income in your personal return.  My son is in the final year of college and in the last 3 years, I had the same issue while preparing my personal tax return. I figured out the trick  hard way ... I wish turbo-tax makes it intuitive for the users so that people don't have to spin wheels to figure things on their own and get stressed out.

@Turbotax - please fix the issue by adding a step to enter 1098-T worksheet information while someone is entering ESA and 529 qualified tuition programs (1099-Q).

Hope this helps and good luck.

Steve

[GRivera1]

So once this is done, neither the 10-99Q or 1098T get entered in the dependent child's return, correct? 

[Hal_Al]

@GRivera1  said "So once this is done, neither the 10-99Q or 1098T get entered in the dependent child's return, correct? "

It's not clear what "this" is.

But, if you have determined that all the distribution (box 1 of the 1099-Q ) was used for qualified expenses, including room & board, after adjusting for the tuition credit and any tax free scholarships, then yes, neither the 1099-Q or 1098-T get entered in the dependent child's return.

The 1099-Q does not get entered on your return either. But the 1098-T does, if you are claiming the tuition credit (and you probably should be).

[Montyab]

I am still confused by this subject.

Seems 4000 of expenses can be used for Credit purposes and if there are additional expenses they should be used to reduce or eliminate taxable income from the earnings portion of the distribution reported on 1099 Q but TT does not seem to do that?

[Hal_Al]

@Montyab 

If you know, after using $4000 for the credit, that you still have enough expenses to cover box 1 of the 1099-Q, just don't enter the 1099-Q.  

The interview is complicated and mistakes will be made.

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." 

[Montyab]

Thanks - I will confirm that it is not taxable - IRS Pub gives an example that is helpful.

Frustating that TT does not do this calculation for us.