Timing mismatch of 529 distribution shown on 1099-Q and Education expenses

[trienzo]

My son's distribution (he was the recipient) from the 529 account shows payments intended for the spring 2022 semester (distribution was made on 12/29/21 and received by the institution on 1/6/22).  TT states that this should be taxable income in 2021.  This seems like just a timing issue and should be correctable and applied in the 2022 return.

[KrisD15]

The IRS works with calendar years.

You can adjust for it but the IRS can question it as well. 

Going forward, it is best to have the funds transferred directly to the school to avoid confusion. 

The adjustment will need to be made by you since the program is designed to work off the information on the tax forms. 

In your situation, you will need to adjust Box 1 on the 2022 1098-T down for the distribution reported on the 2021 1099-Q.

Keep good records in case you need to explain this to the IRS. 

[Hal_Al]

Just don't enter the 1099-Q.

On form 1099-Q, instructions to the recipient reads: "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." 

When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms.  So, there is no way to document your situation with your tax filing.

Technically, a 529 distribution must occur in the same year the expenses were paid.  This problem, of mismatched year end distributions, is fairly common.  Treat it as received in 2022 and report it next year (you probably won't need to enter anything next year either).  And hope you can explain it away if you receive an IRS notice (unlikely).   You certainly meet  the intent of the 529 rules, if not the strict letter.  We haven't seen any reports, in this forum, of how that specific problem  has actually worked out. But, this is the usual advice. 

Do a better job on timing next year