If I put my name as the recipient of a 1099Q (state 529) as it is written, I am taxed on the earnings in TT. How do I get TT to handle this properly?

[pmpilot]

I cannot figure out how to answer the 'Who's shown as the Recipient on your 1099-Q?  Be sure to choose the Recipient as shown on the actual Form 1099-Q.' with my information and not get taxed on the funds.

If I change the recipient's name to my daughter (the student), TT does not calculate a tax penalty on the 1099Q funds from the 529.  But the 1099Q form clearly has my name (father) as the recipient and Box 6 checked (the recipient is not the designated beneficiary). 

All expenses are qualified.

I've also read where you are not required to report the 1099Q anyway.  I'm leaning toward that, but feel like I'm just kicking the can down the road and may get an IRS letter requiring even more work.

Anyone know how to fix this?

[MichaelDC]

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the 1099-Q can be either the owner or the beneficiary depending on where the money was sent. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". If the student is the recipient, then the money is considered his money for the support test. The 1099-Q gets reported on the recipient's return. The recipient's name & SSN will be on the 1099-Q

Some other tricky spots regarding 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. If there is any excess, then it's taxable income. It automatically gets transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Next, 520/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 transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

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 that are taxable, then 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.

If you have any other details regarding this question, please feel free to post them in the comment section. 

[pmpilot]

I've seen this information posted before on this forum.  It is good general information, but does not answer my specific question.  The money was sent directly to me, making me the recipient.  But even after I submit the equivalent qualified expenses, and my daughter is clearly the beneficiary, I am being taxed on the money in TT.  I have worked through the section front to back multiple times from a clean start.

[pmpilot]

I'll also add that when I go to the Form 1099-Q worksheet on line 2 under the QTP section, Enter the amount of adjusted qualified education expenses attributable to the QTP, it shows 0.  Next to it on the For Purposes of 10% Additional Tax it shows the full distribution amount.  On line 4 (Total distributed earnings from Form 1099-Q box 2) it shows the earnings amount reported in box 2 of the 1099.  Later in box 7 of the worksheet (Subtract line 6 from line 4.  This is the taxable amount to the recipient.) it shows the earnings as listed in box 4 of worksheet or 2 of 1099 as taxable.

[MichaelDC]

Aren't you putting the 1099-Q on your child's return?

[pmpilot]

My child is not required to file this year.  She’s 18 and had very little income.  I wasn’t planning on having her file.

[IKER]

I have a similar question.  I am the recipient as listed on the 1099-Q and my daughter is the beneficiary. Why is TT using the Gross Distribution as income when I have already paid taxes on the Basis? Shouldn't the income be the Earnings only? If not, I'm paying taxes on the Basis twice.

TT please respond!

[JohnB5677]

You are correct.  Is there a number in Box 3 of your 1099-Q.  That should represent your basis .

[IKER]

Yes! The 1099-Q shows numbers in Boxes 1, 2 and 3. 

However, TT is showing the Gross Distribution (box 1) as income.

[Hal_Al]

WHERE is it showing the taxable amount?   You may just be seeing the distribution amount on worksheets.  The distribution amount (box 1) and the qualified expenses  are used to calculate the taxable amount of the earnings (box 2).  The taxable amount goes on line 8 of Schedule 1. 

[IKER]

I believe you are correct, as I was going through the step-by-step method; it doesn't appear on Schedule 1. However, TT should address that because what is being shown is not correct.

Thanks!