Do I need to file 1099-Q if the 529 distribution was for qualified education expenses?

[ashburn_jim]

Carl, Farney:  THANK YOU.  The procedure you described allowed Turbotax to properly offset my 529 distribution against qualified expenses even though my AGI disqualifies me for some of the other credits/deductions.  AGI should not affect the basic 529 to qualified expenses offset, including the earnings component.  INTUIT: This part of Turbotax 2016 is seriously whacked and may be costing your customers excess taxes if they don't notice that AGI includes the earnings part of the 520 distribution but there is not later expense offset.  I have gone through the Easy Step on this about 4 times and would be happy to illustrate where the program goes awry.

[farney]

Totally agree. Debating a re-file on last years that cost me over $500 in tax money. Very disappointed in the product on this one. Glad it helped ashburn_jim!

[pmeaux123]

I caught this last year and told Intuit, but they did not fix it.  Called them this year and pointed out the same issue with that interview question where you have to put 0, otherwise you will pay a higher tax.  The Turbotax tax adviser that I spoke to totally agreed with me and even told me to post something here in the AnswerXchange to let others know.  She said she didn't think it would get fixed this year because it isn't a high enough priority because it doesn't affect enough people.  I asked her to put in a request for a refund for the cost of Turbotax because they did not maximize my refund like they guarantee - quite the opposite.

[farney]

Any luck in getting your refund?

[trharms]

Farney, THANK YOU from me too.  The process above worked for me also.  I have two kids in college, a 529 for each.  I pay the expenses out of my savings account, and at the end of the year I reimburse myself by taking the appropriate amount out of each 529 and paying it directly to my bank account.  I am the recipient and my SSN is on the 1099-Q as recipient.  The "income" from the 529 matched the expenses i entered and there was no tax impact due to earnings, and it worked even tough my income is too high to take any of the other educational credits.  I agree turbo tax needs to fix this.  Thanks to those who share their solutions here.

[null332]

The process worked for me too. I zeroed out "Amount Used to Calculate Education Deduction or Credit" since my AGI eliminates those benefits.  I called Turbo Tax with no success.  Many thanks for all the help from the group.  What a relief!

[Jstlooking]

In 2016 I used a 529 account and cash to pay for my freshman's fall/spring college expenses - tuition/room/board/computer.    
In February she was retroactively awarded a 4-yr ROTC scholarship (yea!).  I just received reimbursement for fall tuition from ROTC - spring semester reimbursement is pending.  
Do I claim the ROTC scholarship in 2016 or in 2017.  One or both semesters?  
If in 2016, will I (or my student) have to pay taxes on the proportional share of 529 interest earned on the 529 payments that were in excess of qualified expenses? Any penalty on excess distributions?  Thanks.

[pmeaux123]

I'm pretty sure if you have scholarship you pay tax on excess distributions but no penalty. This impacts me too. Not sure how you handle scholarship for 2016 received in 2017. That would be something I would have to research. FYI:  part of scholarship that covers room and board is taxable.

[Carl]

Basically, scholarships are reported in the tax year they are received. It doesn't matter what year it's *for*. Likewise, tuition and other qualified expenses are reported in the year they are paid, and it doesn't matter what year they pay *for*.
Keep in mind that colleges work in academic years, and the IRS does not. So the reality is, it takes 5 calendar years to get that four year degree. Overall, everything works out in the wash at the end of 5 calendar years.

[pmeaux123]

That makes sense. Thank you.

[meyertrina]

I just spent over an hour on the phone with a CPA from TurboTax about this problem. When I came to the screen that you all recommend to zero out, he said that page was not the problem. In fact, he recommended that I just delete the 1099-Q from my return if all distributions were used for Qualified Education Expenses. TurboTax needs to fix this problem OR at least advise people to zero out the page if they don't qualify for education expenses due to income. I appreciate all of the comments above. I should have read this first and saved a lot of time on the phone!

[Carl]

I'm no CPA and lay no claims to being a qualified tax expert of any type. But for those that just delete the 1099-Q, I'm expecting the named recipient on the form, in 24-36 months to be getting a notice from the IRS assessing taxes on the distribution.

[davidhille]

You must submit the 1099Q or you will get a letter from the IRS stating you owe taxes and penalty.  I accidentally forget it in 2015 and I am now submitting an amended tax return to avoid paying the taxes and penalty.  I am having issues with this now for 2017 taxes.  I am going to delete the 1098T and 1099Q and enter them again.  If that does not work, I will call for assistance.

[rcavalla]

Same problem here -- cannot find the screen with "Amount used to calculate deduction . . . " that I am supposed to zero out. I am getting taxed on the gain for one child's 529 income even though I have matching expenses for every dollar. Can someone please tell me what step to go to in order to adjust this?
Rosanna

[davidhille]

I had to delete the 1099Q and the 1098T and re enter it. Had to do it twice before it took. Do not skip any steps and go in the order that Turbo Tax wants you to do it. You may even need to delete the student and re-enter. Eventually when you put the information back in, there will be a place to add room and board expense if you have any. If that fails, try taxtact. I used that for my son and it worked great.