How do I file 1099-Q for distributions

[MM1958]

We took distributions in 2019 for our son's college expenses from the 529 Savings Plan we have for him.  This was for his rent at school.  We had the distribution sent to our checking account due to his landlord taking the rental payment from that each month.  Box 6 is checked on the 1099-Q (recipient not the designated beneficiary).  Should I report this on our Federal Taxes and how do I avoid penalties?  Is it better to report on our son's taxes?

[DavidS127]

You report the 1099-Q on the tax return for the person claiming the education expenses (e.g., the 1098-T).  If you son is your dependent, those education expenses will generally be reported on your tax return, and if that is your situation, you enter the 1099-Q on your tax return.

You avoid penalties by using the entire distribution for education expenses, which for the 1099-Q distribution includes some things not reported on the 1098-T and not eligible for the other education credits and deductions:

• room and board, books, fees, supplies and equipment;
• purchases of computer or peripheral equipment, computer software, or internet access and related service (used primarily by the beneficiary enrolled at school); and,
• payments on qualified student loans. 

So, make sure you have entered all these in TurboTax for the year you received a distribution.

Note that there are some decisions about how to "allocate" your education expenses to the 529 plan distributions versus the other credits.  Depending on your son's other education expenses and scholarships, it is sometimes better to apply education expenses toward the other education credits such as the American Opportunity Credit (AOTC) and pay taxes on the earnings of the 529 account distribution. 

On the other hand, if your son is ineligible for other credits because of your income levels (e.g., the American Opportunity Tax Credit), you want to allocate "zero" to those credits in TurboTax so that the software will apply all your qualified education expenses against the 529 plan distribution when calculating the taxable portion (instead of "using" some for an AOTC you don't get anyway).

Click the "magnifying glass Search" icon on the top row, enter "1099q" in the search window and press return or enter, and then click on the "Jump to 1099q" link to begin entry of the 1098-Q.

Note that the question about the recipient versus beneficiary is talking about the name of the Form 1099-Q (could be you, your spouse, or your son) versus the person for whom the distribution was used (your son).

[MM1958]

Thank you for your response!

I thought, from what I have read, that room and board were allowed.  I am still confused about how to enter the amount for the 1099-Q and what it was used for. 

[LinaJ2020]

If you have not filed, here are the steps to enter a Form 1099-Q:

In TurboTax online,

• Sign in to your account and select Pick up where you left off
• At the right upper corner, in the search box, type in 1099q and Enter 
• Select Jump to 1099q
• Follow prompts

If you have taken out distribution from your 529 plan to pay for any qualified education expenses like the tuition or room and board, a Form 1099-Q is issued.  If the distribution doesn’t exceed the amount of the student's qualifying expenses, then you don't have to report any of the distribution. If the distribution exceeds these expenses, then you must report it as income.  Who was the Form 1099-Q sent to?  The recipient on the form usually reports it on their return.  However, if you claim your son as a dependent on your taxes, you would report it on your taxes.

[MM1958]

Thank you very much for your response.  The distribution was made to my wife and I (owners of the 529).  My son in the beneficiary.  It all went to his room and board and we didn't have any extra.  If this is the case, and I understood you correctly, I don't need to report anything on my taxes?  Do I also skip jumping the 1099-Q, etc.?

Again, thanks!

[bleonard55]

I have the exact same question.  I took out the amount from our 529 plan to cover the expenses that were incurred and no more.  My 1099Q indicated a gross amount, earnings and basis.  Since I used everything I took out to cover the eligible out of pocket expenses, then I should not have to pay taxes on any amount as I understand it.  When I enter the earnings and basis, I am being taxed again on the amount classified as earnings.  What am I doing wrong and what do I need to include and where to indicate the amount I paid out of pocket for college related expenses such as room, board, books, computer.  Appreciate any help you can offer.

[MM1958]

Did you ever get an answer to your question?  Seems the only answer I got was not to report anything.

Not at all a good response.

Let me know & thanks.

[MM1958]

Are you telling me not to report anything about the 1099-Q?  I got $2,428 and we paid that for our son's rent at his university (room & board).  Will I get in trouble with the IRS for not reporting the distribution?

[NCperson]

@MM1958 @bleonard55  -

if you look at the "Instructions for Recipient" on the 1099Q form (2nd sentence), it states: 

"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."

as long as your expenses (net of scholarships) exceeds Box 1 of Form 1099Q, there is no need to report it in TT  as you have determined the distribution is not taxable and there is no requirement to report that.   

Just delete the 1099Q from TT and put your documentation in a drawer. 

[Carl]

Pay attention to the bold italicized text below.

1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to and included in the total on line 7 of the 1040.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is included in the total on line 7..

Finally, out of pocket money is applied to qualified education expenses

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.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

[Hal_Al]

Q. Are you telling me not to report anything about the 1099-Q?

A. Yes.

Q.  Will I get in trouble with the IRS for not reporting the distribution?

A. No.  Entering it in TurboTax (TT) does not report it anywhere on the IRS forms, when none of it is taxable. 

That doesn't mean you won't hear from the IRS. Several posters have.  But there is no way to avoid by jumping thru the hoops in TT. 

[RunningManAloha]

Hallelujah!  Thanks for the tip, this will save me hours and headaches.  Who knew that I just needed to read the instructions on the form to realize I didn't need to fill all of this out for my taxes.

[MM1958]

Thank you for your email.  I did, however, find out how to enter the qualified expenses in TurboTax to offset the distribution.  I went to the FORMS section and chose the student worksheet.  On that sheet it allows you to enter 529 Qualified Expenses in a Window (in fact you can list them up).  When done it offsets the distribution (at least it did for me).

See what you think.  Maybe old TurboTax isn't too clunky?