Why does TurboTax continue to fail in handling 1099-Q and qualified 529 distributions?!!

[abcdefghijk]

Hello, I have 3 kids in college with 1099-q. Why does turbo tax allow me to put the 1099q on our return and let’s me choose what child it goes for when TurboTax says in its help menu that 1099-q must go on the students return due to the ss number. It is easier this way as expenses are already documented. 

also I read on this thread that you can  have the 1098t on both the parents and the students return to correctly enter the 1099-q if they 1098-t is on the parents return??? 

thanks for your help. 

[abcdefghijk]

I just posted a question on the bottom

of this thread, can you look at at it and reply. Thanks for your help and knowledge. 

[Hal_Al]

@abcdefghijk  said "also I read on this thread that you can  have the 1098t on both the parents and the students return to correctly enter the 1099-q if they 1098-t is on the parents return"

Yes, but not exactly.  The 1099-Q can only be reported on the recipient's return* (see above for definition of recipient).  The 1098-T can go on both returns, but must be adjusted for amounts used on the first return.  If there are sufficient expenses, the 1099-Q does not need to be reported at all (see details above).

*In TurboTax (TT), you can enter the 1099-Q on the parents return, even when the student is the recipient.  TT will then inform you you need to need to enter on the student's return. 

[abcdefghijk]

Thanks so much…. But Why does turbo tax allow me to enter 1099-q for my student even choosing their name though on our return? Is says it this 1099-q for child A? And I say yes and choose the correct name on our return… confusing 

[Hal_Al]

Depending on other details, of your return, TT may ask who is the student, who is the beneficiary, who is the recipient.  It gets confusing. 

[abcdefghijk]

So if TurboTax does this is it ok to include it on ours or no??? Each 1099 is assigned to the correct student etc. 

[abcdefghijk]

So if TurboTax does this is it ok to include it on ours or no??? Each 1099 is assigned to the correct student etc. 

also if entering. 1098-t on both how do you adjust accordingly. Thx a ton! Really appreciate your help 

[abcdefghijk]

Sorry for the duplicate reply. 

[Hal_Al]

Q. So if TurboTax (TT) does this is it ok to include it on ours or no???

A. No.  The 1099-Q gets entered on the recipient's return, if it needs to be entered, at all.  If  TT is entering on your return it's because you told it that you are the recipient.

You may have to delete the 1099-Q and start over.

For most families, the 1099-Q does need to be entered at all because it was all used for qualified expenses (tuition, fees, books, computers, room and board (food and housing).  But if you need to use some of the same expenses to claim a tuition credit, then you'll have to calculate the taxable portion of box 2 of the 1099-Q.  TT will do this with careful entry of the data.

Q. If entering the1098-T on both how do you adjust accordingly? 

If entered correctly, TT will do this automatically, but not reliably.  So, you need to verify that it happened. On the student's return, go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it (usually $4000). TT notoriously  wants to use $10,000 for the Tuition credit rather than $4000. 

If TT doesn't assign an amount, you'll have to use a workaround. Using an example, if the parent is using $4000 of tuition to claim the American Opportunity Credit, the student reduces box 1 of the 1098-T by $4000 when he enters it on his return.  

[abcdefghijk]

Thank you so much. Really appreciate it. 

for the 1098-t- let say’s it is 8000 for box 1 - 4000 used for aotc. So when I put it on my child’s I then include $4000 in box 1. Can his books and materials also be  put on his return as well or no because those are on our return for his expenses? 

[Hal_Al]

Q. For the 1098-t- let say’s it is 8000 for box 1 - 4000 used for aotc. So when I put it on my child’s I then include $4000 in box 1.

A. Yes*.  

Q. Can his books and materials also be  put on his return as well or no because those are on our return for his expenses? 

Entering all the expenses on your return is meaningless.  What counts is actually using them.  The only expenses you need/use, on your return,  is the $4000 of tuition to claim the AOTC.

So, yes all other expenses, including books and course materials, go on his return. 

* Verify that TT didn't already allocate money to the credit, as previously described. 

[tcollinsw1]

Still broken in 2022 for 2021 tax year. If 1099-Q was for qualified tuition expenses watch carefully if you enter it as it will likely incorrectly reduce you refund.

Intuit, please fix this or at least provide guidance in the product when and where we are entering this info. Would prefer you spend more time getting the taxes right than trying to up-sell us on the more expensive version.

[JillS56]

The thing is with the 1099-Q, it does not have to be reported.   Funds distributed from a 529 Plan, will be reported by the bank on a Form 1099-Q.   The 1099-Q is sent to the owner/recipient of the 529 Plan funds.   The Form 1099-Q is to be reported as income if they were not used to pay qualified college tuition/ expenses.    If the amount reported on the 1099-Q were used to cover qualified college tuition/expenses you do not need to report the income.  If the amount exceeds the amount of college tuition/ expenses then the excess needs to be reported as other income on your 1040.   

This is true for the 1098-T, if you are not eligible for the 1098-T because you took a distribution from a 529 Plan to cover your tuition/expenses, room and board, books, etc. then you do not need to report the 1098-T on your return.  

To determine whether or not you need to report the 1099-Q and/or 1098-T, if the 1099-Q distribution is enough to cover the tuition in Box 1 and the room and board, other expenses you do not have to report either form as you would not be eligible for the 1098-T.   We now have to determine how the amount of scholarships may affect the outcome.   Subtract the amount of scholarships/grants in Box 5 of the 1098-T from the amount in Box 1.   Is this amount plus the room and board and other qualified expenses still equal to or more than the amount of the 1099-Q?   If so, you do not have to report the 1099-Q or the 1098-T.   

On the other hand, if the amount in Box 1 is less than the amount in Box 5 where there is an excess of scholarship funds you may have to report this excess as income.   If the tuition/expenses and the room and board and other qualified expenses are still equal to or more than the total amount of the 529 distribution you are still good and do not have to report either document unless there is enough excess that you may still qualify for the tuition credit.    Now if the amount ends up being less than the 529 distribution, then you have to report this excess as income on your tax return.   This can be done by adding the amount on Line 8f of Schedule 1 (other income) or you can enter the 1099Q and the 1098-T.   If you choose to enter the forms, make sure you add the cost of room and board and other eligible education expenses.   Qualified expenses are amounts paid for tuition, fees, and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution.

[MoGuy]

I spent some time googling users' comments on the way TurboTax (erroneously) handles the central issue -- i.e., calculating a student's tax based on the assumption that his/her parents claimed an education credit even where the parents weren't eligible for, and thus didn't take, the credit -- and it seems this same glitch has existed for a few years now.  For the life of me I can't understand why they don't just fix it.  TT is a solid program overall and it's able to handle issues that seem far more complex than this, so I'm not sure what the underlying problem is.  I empathize with the TT personnel who have to deal with this same issue year after year -- they are in a tough spot, and make valiant efforts to reverse engineer a solution (e.g., "just don't enter the 1099-Q" or "just don't enter the 1098-T" or "enter the 1099-Q, but then override the figures in the worksheet in order to get the correct result") when life would be so much easier if TT simply wrote some new code and added a question or two to the interview to determine whether any education credits were ACTUALLY TAKEN.  I'll continue using TT, but I'm disappointed that they haven't fixed a problem that's been brought to their attention multiple times.  

[SDun12]

Perhaps TT doesn't ask you if the parents took it or not because it doesn't matter.  As long as the student has a parent alive they don't qualify for the full credit (except in some rare circumstances where they truly provide their own support)

it's not a glitch.  It's the tax law.  The authors of the tax law intentionally wrote it so that parents who don't qualify to take the credit can't simply pass it on to their children.  One of these days, the IRS is going to ask for all of that money back that you weren't supposed to take.