When my daughter includes her 1099-Q, TurboTax is ...
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MountainGal
Returning Member

When my daughter includes her 1099-Q, TurboTax is counting a portion of the Coverdell distribution as taxable income

I am the parent; my daughter is filing as an independent. She graduated in August 2020 and has been working since then. Her name and social are on the 1099-Q.

 

On the 1099-Q, Box 1 is $23,152.28 and Box 2 and 3 are $0 (not blank).

On the 1098-T, Box 1 is $14,610.00 and Box 5 is blank. Box 4 is $110, in case that factors in.

She lived off campus; the school's Room & Board charge for the spring semester is $8,450.

She paid $92.28 for books.

 

When I include all those numbers in the Education Expenses Summary, it is still adding part of the distribution to her taxable income.

 

I might be able to "find" some additional expenses. I see they include a box for internet service, which I know she paid during the spring semester. She took summer classes remotely from home, but did not include any amount for room and board for that, even though she was still paying rent elsewhere for part of that time.

5 Replies
Cynthiad66
Employee Tax Expert

When my daughter includes her 1099-Q, TurboTax is counting a portion of the Coverdell distribution as taxable income

When the beneficiary enrolls in school and starts taking distributions to pay school expenses, he will begin receiving a Form 1099-Q each year. And as long as the distributions are used to pay only qualified education expenses, the beneficiary doesn’t pay income tax on the distributions.

 

However, when distributions exceed qualified expenses a part of the distribution is taxable.

 

 

MountainGal
Returning Member

When my daughter includes her 1099-Q, TurboTax is counting a portion of the Coverdell distribution as taxable income

But the qualified expenses I itemized above exactly match the distribution, so it should not be taxable income.

DawnC
Employee Tax Expert

When my daughter includes her 1099-Q, TurboTax is counting a portion of the Coverdell distribution as taxable income

The tuition is applied to the education credits first.   Does her return show any education credits?    A full-time unmarried student, under age 24, whether a dependent or not,  is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working.   

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Hal_Al
Level 15

When my daughter includes her 1099-Q, TurboTax is counting a portion of the Coverdell distribution as taxable income

I agree with DawnC, the most likely explanation is TurboTax has assigned some of the expenses to the Tuition Credit. 

If the student is eligible for the tuition credit (especially the American Opportunity Credit [AOC]), it's best that she claim that and pay a little tax on the Coverdell ESA.  

If she has graduated and is working, she is probably eligible.  This assumes the parent didn't already use up the 4 allowable AOC credits. 

 

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.

You may reach that or a similar screen earlier in the interview. 

MountainGal
Returning Member

When my daughter includes her 1099-Q, TurboTax is counting a portion of the Coverdell distribution as taxable income

Thank you! Yes, this is exactly what is happening. She is getting the AOC credit. For some reason, I had not previously come across that screen to adjust the amount. I appreciate the help Hal_Al and DawnC!

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