I entered the 1099-Q and 1098-T in Turbo Tax Premier. The tuition on the 1098-T was $6 more than the distribution on the 1099-Q. Therefore, the 1099-Q is more than offset by tuition. There were no scholarships and no other distributions. In the section where it asks who the 1099-Q was for, if I enter the beneficiary, same as the recipient/beneficiary/student, it taxes the earnings amount from the 1099-Q. If I enter that the 1099-Q went to someone else, the 1099-Q is no longer taxable. This appears to be an error in the program as it should be non-taxable for the recipient/beneficiary/student and taxable for someone else. I cannot figure out how to report this.
If not, can someone please explain why the beneficiary/recipient/student is being taxed when the tuition offsets the distribution. This is the student's tax form.
Q. Can someone please explain why the beneficiary/recipient/student is being taxed when the tuition offsets the distribution.
A. The interview is just complicated and it's easy to enter somethin wrong. Just delete the 1099-Q and the 1098-T. In particular, TurboTax assumes that some of the tuition is allocated to the tuition credit. You must override that number.
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the 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. But, it will prepare a 1099-Q worksheet for your records (you don't need it). You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit.
References:
You mention that there are no scholarships. Are the parents eligible for the tuition credit (is you income under $180K)? If so, you should be claiming that, even though the 529 distribution covered all the tuition. Room and board, books and a computer are also qualified expenses for a 529 distribution.
I cannot claim her as a dependent. Therefore, this is being reported on her taxes. I deleted both forms. Doing this reduced her refund even further. She only took one class in the Spring prior to graduating. She took the 529 distribution to cover the tuition. Why is it taxing the 529 distribution? If I delete them both, it almost completely removes her refund.
If I select that she was not the beneficiary, it increases her refund.
Also, I can't just not report the 1099-Q. It's required to be reported.
" If I delete them both, it almost completely removes her refund."
That sounds like TurboTax (TT) is awarding her some tuition credit. Allocating money to the tuition credit, will reduce the amount of tuition allocated to the 529 distribution, making some of it taxable. The credit is better, so TT may be allocating all the tuition to the credit.
Look at the student information worksheet (line 17) for how the tuition money is being allocated.
If she only took one class, then room and board are not a qualified expenses for the 529 distribution (student must be half time or more).
If you reply, provide the amounts in box 1 of the 1098-T and boxes 1 & 2 of the 1099-Q.
"Also, I can't just not report the 1099-Q. It's required to be reported."
No, it does not. I quoted you two references, above, that says the opposite. But that's now academic. It appears that TT may be doing it right.
That's the conclusion I came to after going to read p970 on the IRS site. That was the answer I was looking for. She gets more back if she takes the credit, but she'll have to "pay" taxes on the 529 distribution. Not providing amounts but yes, there were earnings (almost double basis). That's what TT was calculating the tax on.
Thank you for the response.