CHET vs Lifetime Learning Credit on CT State Return

[valeriefields1]

Hello!

It has been determined that it is beneficial for me to take advantage of the Lifetime Learning Credit as opposed to the CHET benefit  (Because I am in a low tax bracket, it's a 20% LLC credit vs a 12% tax rate)

When entering data into the CT State Turbotax return, I came upon this section:

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"ENTER EDUCATION TRUST DISTRIBUTIONS

Include the amount of any distributions from the Connecticut Higher Education Trust Fund (CHET) that were included as taxable income on your federal return.

Note: CHET distributions are not taxable on your federal return if the distribution is used to pay for qualified higher education expenses.

Amount of CHET Distributions ___________"

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Q:  Since I took advantage of the the Lifetime Learning credit instead of the CHET advantage, I'm guessing the distributions from the CHET are included as taxable income on the federal return.   So do you agree I would need to put the gross distribution amount from my 1099-Q box 1 ($9363.99) as the "Amount of CHET Distributions" on the Turbotax screen?

Thanks for any assistance

[MaryK4]

Yes, if you claimed the credit making the CHET taxable, you must include that amount as federally taxable.

CHET features state and federal tax free earnings and withdrawals on qualified higher education expenses. Connecticut families can take an income tax deduction (up to $5,000 for single filers, $10,000 for joint filers) on contributions to CHET accounts.

[valeriefields1]

Does it make sense to you that by entering this number in, it would make the CT Return go from a $641 refund to a $915 refund?  I was expecting it to go down.

[MaryK4]

Yes, because even though it was taxable for the federal return, you get an adjustment on the state return because the state gives it beneficial tax treatment.  @valeriefields1 

[valeriefields1]

Thank you so much!