TT has acknowledged this bug, has correctly described it back to me and has also identified the workaround (available to download people; online people, you're stuck).
Federal Taxes >
Deductions and Credits >
[Education Section] ESA and 529 Distributions (form 1099-Q)...
The software interview proceeds fine at the beginning, but is MISSING important questions later on.
Consequence: if you, as a parent, received a 1099-Q for a 529-plan distribution out to YOU which you then turned around and spent on qualified higher education expenses, TT will treat this as taxable income to you. That's only supposed to happen if you screw up and pocket the money.
The reason TT makes this error is that the interview in 2025 FAILS TO EVEN ASK what you spent the money on.
Workaround (for download customers):
Goto "Forms" (upper right hand corner)
At left, select "Form 1099-Q"
This is not a tax form, but a worksheet titled "Form 1099-Q Payments from Qualified Education Programs (Under sections 529 and 530)
Part of this form is filled in correctly by TT software, but if you scroll down, you eventually get to a section called: "Qualified Tuition Program (QTP) Computation of Taxable Distribution"
Turbotax will have seeded lines 2a, 2b and/or 2c with zeroes....because the software never asked you the questions for these data points. If you have download software version you can do what I did, right click, "overwrite" both numbers in line 12b, and write in the 529-qualifying education expenses for which you spent your 529 distribution.
After that, the basic arithmetic of TT works correctly.
This should be a SIMPLE fix for Turbotax - just put in a question in the interview to feed these data points. It existed in 2024 version of the software. This is not a calculation error or a mistaken pull of data into the wrong field. It is simply the failure to even SEED a worksheet with starting data.
Unforunately, after 2 weeks, Turbotax STILL hasn't emailed me back as they promised. I called in and after speaking to three people and waiting for 71 minutes, we determined that the developer assigned to my inquiry had 1) correctly and perfectly understood the issue I described above, and 2) came up with the very same work around.
Then the case was closed. No actual fix to the software. No reply back to me.
Bugs happen. That's life. But botched communications and half-assed efforts at fixing bugs are ENTIRELY within TurboTax/ Intuit's control. Intuit continues to let us down.
