2024 1099-Q includes Spring & Fall 2024 plus Spring 2025 due to tuition due dates

[nickseman]

My child's TAP-529 1099-Q includes distributions for three semesters Spring/Fall 2024 plus Spring 2025 due to tuition due dates (before the end of 2024).  The college 1098-T only lists the tuition expense for Spring/Fall 2024 resulting in an "excess distribution".  All TAP monies were used for qualified expenses and the expenses exceeded the distribution.  Due to the extra semester showing on the 1099-Q this is resulting in a large tax burden due to the timing of the distribution.  What is my course of action ?

Thanks;

Gus

[Hal_Al · Accepted solution]

The 1098-T and the 1099-Q are only informational documents.  You are not required to report them on your tax return.

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." 

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, or offset 529 distributions, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2024 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

The payment of Spring 2025 expenses, in 2024, is a qualified expense for all tax reporting (tuition credit or 529 distribution). 

[nickseman]

Thank you for your assistance !