Can someone answer this 1099Q / 1098T question...it seems to be a common issue..that confuses all...PLESE HELP!!!

[confusedrf]

Re:

Box 5 shows only her scholarship from the school - 16,650

The 529 distribution is only represented in Box 1.

Neither her nor I endorsed a check from the 529 plan.

Uh yea...
My Box 1 1098T shows $40K in total Payments.

My Box 5 1098Tshows $22K - which (coincidently?) happens to be her scholarship award.

The balance is $18K. Since her loans and cash were $7K..the only thing left was the 529 Payment which was made directly to the school...which on the 1099Q shows...$11K.

Someone from TT should step in here and clear things up!

[NCperson]

@confusedrf - so here is what I understand from your comments

1) your 1098T has a net of $18,000 (box 1 - box 5)

2) your 1099Q has $11000 in box 1 

a) assuming your child is your dependent, the 1098T goes on YOUR tax return. This is a requirement to take the AOTC credit. 

b) assuming you are eligible for AOTC, you will get up to $2500 in a tax CREDIT on YOUR tax return - look at form 8863 for the math, but it uses up $4,000 of the $18,000 in 1098T net expenses for this to occur.  That leaves $14,000 in expenses

b) Since the remaining expenses of $14,000 EXCEEDS the 1099Q Box 1 of $11,000, the Box 2 earnings are NOT taxable and there is nothing to put into your child's tax return (since their social security number is on the 1099Q)

easy!

[confusedrf]

Yes...I have said all along I am filing both the T and Q on my return.  Nothing is on my daughters return relating to school...she made 4.5k on her summer job and gets a small refund.

So far as I can tell the 11k 529 payment made by the 529 administrator directly to the college is included in 1098t box one...not in box 5.

[NCperson]

only adjustment I'd suggest to your response is that the 1099Q, since it has her daughter social security number on it (because the payment went directly to the school GOES ON HER TAX RETURN AND NOT YOURS.  in this case that is a moot point because the expenses exceed the 1099Q box 1.  Do not put the 1099Q on anyone's tax return (it doesn't get sent to the IRS in any event).

the way it works is that the 1099Q has the student's social security number on it if the payment goes directly to the school. Presumably they are all payments to cover off expenses on a school statement and the IRS knows where the money went.

but if the 529 money goes to the parents, the IRS doesn't really know what happened to the money, creating all these hoops to get the same end.  In this case the parents social security number is on the form and they are required to file it (assuming Box 1 exceeds the available expense)

[confusedrf]

Well, this whole thing feels like it really could have been at least 3 separate conversations. Things got a bit muddled up. I am not sure everyone ready everything.

You last comment about putting the 1099Q on my dependents return may be true...last year I read dozens of posts trying to figure that out.  Moot or not its on mine this year.  I think/hope/pray  am good...and bullet proof with getting AOC my first two years... and that  TT gets their update in place so I can file and put this...hopefully behind me.

My shrink says I can't come back here no more!

Seriously, I suspect I'll be back next year again but my philosophy will start with:

1) Take 1098T Box One, subtract Box 5 (which for the first two years has been her scholarships).

2) Take 1099Q Box 1 and subtract that. If there is a large negative number as a result, it means I jumped ship for Tahiti!

3) Seriously, the rest will be whatever portion of her fa19/sp20 loan they booked to tax year to 2020.

4) If that amount is greater than 4K I get AOC again. I am guessing it will show: $3250 though.

5) I think that gets me most of the $2500 and unless I pay quite a bit out of pocket for her books, or god forbid another course at the local community college, I'll just keep records for those things but probably not try to figure out how to input them to get the total $2500...its not worth the aggravation! 

6) Since we will not be accepting loans going forward, the real fun comes senior year...that where using room and board comes back into play!

[NCperson]

nope - let me get you more tax savings....

1) Take 1098T Box One, subtract Box 5 (which for the first two years has been her scholarships).

2) calculate the AOTC. If I am eligible for the max, subtract $4000 from the answer in 1) 

2) Take 1099Q Box 1 and subtract that. If there is a negative number as a result, it means I jumped ship for Tahiti!  if there is a positive number, then some of the Box 2 earnings are taxable, but that is a small price to pay for getting the $2500 tax credit in 2) 

[confusedrf]

Re

if there is a positive number, then some of the Box 2 earnings are ......

Not sure why it would be taxable....but next year is another year....

[jlar]

"So far as I can tell the 11k 529 payment made by the 529 administrator directly to the college is included in 1098t box one...not in box 5." 

@confusedrf  Your statement above appears to be correct. I talked to my College administrator about this and they confirmed. I trust their approach on this. My 1098T is the same treatment - last year and this year!

Thank god for @NCperson and @Hal_Al ...the voices of reason and wisdom.

@confusedrf  - you are in good shape. Don't report the 1099Q at all. If it's on your return it doesn't need to be unless it has YOUR SS# on it. And like the others said, if you put it on your daughters return TT won't submit it any way once it 'zeros out'...My only concern with this whole concept was 'getting it to zero out'.  TT doesn't seem to walk us through that correctly.

This is where we now finally have some clarity on how to do this from Hal:

"Q. **Can i enter a 1099Q line 2c "Adjusted Qualified Higher Education Expenses applied" amount on my daughters federal return to 'transfer' the amount of 1098-T qualified expenses entered (on my/parent return) and 'stranded' (i.e. in excess of the $4000 AOTC qualification)...plus other qualified costs, such as books, Room and Board, etc.

***A.  Yes. In fact, that is the way it should be done. 

But once you calculate that none of the 1099-Q is taxable, either on your return or the student's, NOTHING is sent to the IRS.  Whether you do all that work or just don't enter the 1099-Q; you have the exact same risk of being audited by the IRS.  Even if the calculation determines that some of it is taxable, only the taxable amount is entered on Schedule 1 (line 8); none of the calculations are sent to the IRS. "

@confusedrf  - you paid 18k net after scholarships. 18k - 4k AOTC = 14k left to cover the 529. That is more than enough to net out the 11k 529 distribution. If you do enter the 1099Q on her return, use the technique to enter 14,000 in line 2c as above. That zeros out any taxes and/or penalties. If what others are saying is true, TT won't even include the 1099Q to the IRS. And that is where the whole "don't include the 1099Q on the return" seems to be coming from...and it seems legit, when justified, to avoid this nightmare.

In my case, I still feel like I have some exposure on my daughters return unless I get into the questionable Room and Board while living at home thing. I may be better off NOT reporting the 1099Q on my daughters return and then submit  documentation and rationales to the agency if they come knocking. But that will be for my accountant to advise on.

I did figure out why my numbers were off by $25...my daughter dropped a class late in 2019 and there was a fee adjustment for that. All else is correct. 

Sincerest thanks to NC and Hal - you rock! @confusedrf , listen to NC and Hal - I have enjoyed your humor! 

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[#9]

"Q. **Can i enter a 1099Q line 2c "Adjusted Qualified Higher Education Expenses applied" amount on my daughters federal return to 'transfer' the amount of 1098-T qualified expenses entered (on my/parent return) and 'stranded' (i.e. in excess of the $4000 AOTC qualification)...plus other qualified costs, such as books, Room and Board, etc.

***A.  Yes. In fact, that is the way it should be done. 

But once you calculate that none of the 1099-Q is taxable, either on your return or the student's, NOTHING is sent to the IRS.  Whether you do all that work or just don't enter the 1099-Q; you have the exact same risk of being audited by the IRS.  Even if the calculation determines that some of it is taxable, only the taxable amount is entered on Schedule 1 (line 8); none of the calculations are sent to the IRS. "

@confusedrf  - you paid 18k net after scholarships. 18k - 4k AOTC = 14k left to cover the 529. That is more than enough to net out the 11k 529 distribution. If you do enter the 1099Q on her return, use the technique to enter 14,000 in line 2c as above. That zeros out any taxes and/or penalties. If what others are saying is true, TT won't even include the 1099Q to the IRS. And that is where the whole "don't include the 1099Q on the return" seems to be coming from...and it seems legit, when justified, to avoid this nightmare.

In my case, I still feel like I have some exposure on my daughters return unless I get into the questionable Room and Board while living at home thing. I may be better off NOT reporting the 1099Q on my daughters return and then submit  documentation and rationales to the agency if they come knocking. But that will be for my accountant to advise on.

I did figure out why my numbers were off by $25...my daughter dropped a class late in 2019 and there was a fee adjustment for that. All else is correct. 

Sincerest thanks to NC and Hal - you rock! @confusedrf , listen to NC and Hal - I have enjoyed your humor! 

[NCperson]

this of this as 'sources and uses'

uses are what buy = tuition and related expenses (on Box 1/ 1098T) as well other expenses such as room and board incurred,books (not already on the 1098T) and computer related expenses

sources - is the cash - that would be Box 5 / 1098T, Box 1 1099Q, up to $4000 if you qualify for AOTC 

if sources are less than uses, no need to file the 1099Q.  otherwise, you disbursed more funds from the 529 plan than was needed, so some of Box 2 will be taxable 

[idotaxes]

I have a similar situation.  Helping a friend do their taxes.  Their daughter has a 1098T for Tuition for $20,944 with scholarships of $16,951.

Her 1099Q reflects a gross distribution of $16,019 with earnings of $8,826 leaving a basis of $7,193.  One of the distributions was made on 12/21/21 in the amount of $4,629 which was NOT reflected in the gross tuition total.  (Her parents have a statement from the university showing it posted in early January)  She has other expenses (room/board, etc) not reflected on 1098T in the amount of $5,797.  All monies were used for college expenses.

What are the tax implications here and do the parents qualify for the OTC? 

[Hal_Al]

@idotaxes  need more info

• Is the  student  the parent's dependent.
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
• Does the $5797 include all Room & board,  books & computers
• How much taxable income does the student have, from what sources
• is parent trying to claim the tuition credit (are they eligible)?
• Is the student an undergrad or grad student?

[KrisD15]

One issue is this-

The owners of the account took a distribution in 2021 but did not pay the school until 2022. 

Was the payment MADE in 2021, but just not POSTED until 2022? 

You can PAY in 2021 for classes that start in the first 3 months of 2022, but not the other way, you shouldn't take a distribution in 2021 that doesn't pay the school until 2022. 

The INTENT of a 529 plan is to provide tax-free earnings for education expense use, therefore a Taxpayer could argue that the distribution taken in 2021 fulfilled the intent, even though it wasn't posted until 2022. 

As far as "Is the taxpayer eligible for a credit?" 

There would be additional information needed to answer that. 

[idotaxes]

@Hal_Al 

Yes, student is parent's dependent.  (first year of college)

Box 5 simply states 529 State Plan

Scholarships do not indicate if it's required for tuition only.  I'm assuming no since after lengthy discussion with parents they did not indicate as such.

The student's name and SS number is on the 1099Q .

The $5797 is room and board

The student has $5,127 in earned income from two part-time jobs.

The parent would qualify for the tuition credit.

Student graduated high school in June and is a freshman in college.

[Hal_Al]

@idotaxes  said:

Yes, student is parent's dependent. .... Scholarships do not indicate if it's required for tuition.  The student's name and social security number is on the 1099Q. The $5,797 is room and board. The student has $5,127 in earned income from part time jobs. The parent would qualify for the tuition credit. Student graduated high school in June and is a freshman in college.

The parents should claim the American Opportunity Credit (AOC).  The simple way, enter the 1098-T with $4000 in Box 1 and Box 5 Blank. No need to enter any other numbers.   The student will pay a little more tax on her return.  

On the student's return, don't worry about the  $4629 late 529 distribution (it's included in the $16,019 and was effectively paid in 2021).  

Entering her info in TurboTax will be complicated.  She wants to declare $7073 of scholarship as taxable (12550 - 350 - 5127) to get the maximum standard deduction.  So, that means that $9878 (16,951 - 7073) of the scholarship will be allocated to tuition.  That leaves $7066 (20, 944 - 4000 -9878) of tuition to allocate to the 529 distribution.  Qualified 529 expenses are 7066 + 5797 (R&B) = 12,863.  12863 / 16019 = 80.3 % of the earnings are tax free (19.7% are taxable).  0.197 x 8862 = $1746 taxable income from the distribution (subject to the "kiddie tax").  

Theoretically, TurboTax (TT) can handle all that and give you that result.  On the student's return, enter the 1099-Q first.  Later enter the 1098-T and Room & Board (to get the screen to enter Room & Board [R&B], answer yes when asked if you have book expenses). When asked how much of the scholarship was used for R&B, enter $7073 (that's to make it taxable, it didn't literally have to be used for R&B). You should eventually reach a screen called "Amount used to calculate education  credit." Be sure the amount in that box is $4000. 

[Texasjugnaut]

Hi Hal_Al

I have basically the same situation as the OP of this thread, regarding the daughters forms, expenses, etc.

And thanks for the first two answers, that cleared up a lot of same questions about the 1098-Q form.  It was good to know the IRS does not require this to be submitted.

One follow up question I have, with a small difference, is that my daughter did not work, and so has no W-2 to report. 

She was only a full time student, who received the expenses and scholarships reported in the 1098-T form. 

Does she have to file separately at all, to provide the IRS the same 1098-T information again?  Or is she covered, by us including that information as our dependent?   Thanks very much