My daughter is the recipient of a distribution from a 529 Plan owned by my father (her grandfather). The 1099-Q was sent to her and displays the last four of her SSN.
Who reports the distribution for tax purposes: my father (grandfather/owner of the 529), my daughter (the beneficiary, but who has nothing else to report on a tax return), or me (because she's already listed as my dependent) ? Thanks for your help.
Edited 02/10/2017 at 10:04 AM PT.
The person who receives the funds (whose SSN is on the 1099-Q ) has to report the Form 1099-Q on their tax return (If the money went straight to the school, it is treated as going to the student).
You can enter the Form 1099-Q in either the Wages & Income section or the Deductions & Credits section of Federal Taxes,
(If entering in Wages & Income, the Coverdell ESA and 529 qualified tuition plans interview is found under Less Common Income > Miscellaneous Income).
(If entering in Deductions and Credits, the ESA and 529 qualified tuitions interview is found under Education).
Thank you. I have a few follow-up points & questions:
1) She has never filed a tax return because she has no income
2) The Earnings on the distribution from the 529 Plan were less than $22 (per the 1099-Q)
3) In light of these two points, do I still need to create a new tax return for her in TurboTax so that she can complete the Education Expenses & Scholarships interview?
4) Alternatively, can she complete that interview in my tax return because she's still my dependent, the amount of Earnings is so small, and has nothing else to report?
5) We've not received a Form 1098-T. Should we be expecting one, and who would issue it (would it come from the University?)
Thanks again.
You should receive the 1098-T from the university sometime in early February. If that is her only income, there is no need for her to file a tax return. - the threshold income for her to file a return is $1050.
Since a dependent is unable to claim their own exemption, a tax return is necessary when their earned income is more than the standard deduction for a single taxpayer, which in 2016 is $6,300. However, the threshold decreases to more than $1,050 when the dependent's income is unearned, such as from dividends and interest.
Since she is not required to file a return and report the interest, you don't need to include the 1099-Q in your return. You should just complete the Education Expense interview with 1098-T on your return.
TutboTaxToddL, I want to make sure I understand your initial response to the question asked. If 529 money went straight to my college son's school, my son must complete the Educational Expenses and Scholarships interview as part of his tax return. For the 529 money that we as parents received to cover miscellaneous educational expenses on his behalf, we should complete the Educational Expenses and Scholarships interview on our joint tax return. Correct?
If this understanding is correct, your answer makes sense, but appears to contradict a response found at https:/ttlc.intuit.com/questions/2854185. That response included the following:
"Here’s the general rules gisted from IRS Publication 970
at <a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p970.pdf">http://www.irs.gov/pub/irs-pdf/p970.pdf</a>
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited
institution and:
Is enrolled as at least a half time student for one
academic semester that begins during the tax year, (each institution has their
own definition of a half time student) and:
the student's parents provide more that 50% of the
student's support (schollarships/grants received by the student do not count as
the student providing their own support)
Then:
The parents will claim the student as a dependent on the
parent's tax return and:
The parents will claim all schollarships, grants, tuition
payments, and the student's 1098-T on the parent's tax return and:
The parents will claim all educational tax credits that
qualify.
If the student will be filing a tax return and:
The parents qualify to claim the student as a dependent,
then:
The student must select the option for "I can be
claimed on someone else's return", on the student's tax return. The
student must select this option even if the parent's qualify to claim the
student as a dependent, and the parents do not claim them."
Would you please explain further? Thanks!
Not sure what contradicts my guidance. Whoever the 1099-Q is issued to must report that 1099-Q on their tax return. If it goes to the child and the parents are claiming that child as a dependent, the child can still report the 1099-Q and offsetting educational expenses. The 1098-T is reported on the return where the child is claimed as dependent.
The https:/ttlc.intuit.com/questions/2854185 response doesn't seem to make a distinction based on whoever the 1099-Q is issued to. To quote again, "The parents will claim all schollarships, grants, tuition
payments, and the student's 1098-T on the parent's tax return..." It doesn't appear that the student has to deal with this at all when filing his/her tax return. However, you say that if the 529 payment for tuition, etc. went directly to the school, the student is considered the recipient.
TutboTaxToddL - as the original poster, I'd like to thank you for the info and wanted to confirm one final point: in our scenario, no one reports the 1099-Q on a tax return, correct? Neither my daughter, her grandfather (who owned the 529 account), nor me. Please let me know if that understanding is correct.
The 1099-Q must be reported on your daughter's tax return since the 1099-Q was sent to her and displays the last four of her SSN. She can still file a return and note that she can and will be claimed as a dependent on another return (yours). If she doesn't have any income, her standard deduction will "wipe out" the 529 interest income, i.e. no tax. If she doesn't file and report the 1099-Q, the IRS may or may not send her a notice asking for a tax payment - this will depend on the amount of interest income on the 1099-Q, i
Thanks again. I created a TurboTax return for my daughter and it shows she owes $2 in federal tax. I'd like to provide a few more details from our scenario to see if it affects your guidance:
My daughter is currently a senior in high school, and the $500 from the 529 plan was a deposit to confirm her planned enrollment in college this Fall. I believe using 529 funds for this purpose is a qualified expense and should not be taxable. Perhaps it was a mistake to send the money in the final days of 2016 (because she wasn't actually enrolled yet), but we were trying to meet the university's early January 2017 deadline to receive payment. In regard to the $2 tax (not a significant amount, but as a matter of primciple), does that information affect your guidance in any way?
I understand. Technically a deposit would not be a qualified education expense, because it is not an "expense". It will be included in her 2017 Form 1098-T as an expense when tuition is billed/paid.
Irritating as it may be, she should file and pay the $2 tax.
Hello, ToddL,
Thank you for your post.
I am curious to understand what it means that the 1099-Q can be reported as income or as deduction.
First, does this include non-qualified distributions or only qualified? My withdrawal was non-qualified.
Second, what is the purpose or reason to list it as deduction vs. income? Might it lower my tax bracket?
Third, does entering it as deduction LOWER the income of the tax payer? I thought deductions were for EXPENSES rather than for income? I have $13,000 in earnings listed on my 1099Q and am considering itemizing my deductions by putting this 529 money as a large deduction.
Last, does the 10% penalty come off first and then the taxes are paid?
I appreciate any help you can provide as I am not a tax savvy person.
Eric
It is not entered as a deduction or credit.
It is listed in the "Deductions & Credit" section because it should be matched to a 1098-T which is a form to claim a credit.
It would never be entered on a Schedule A.
Please click the link below for more information:
My problem is that I withdrew the money from the 529 as the grandmother and sent a check to my granddaughter to pay the tuition. Now I have a 1099 in my name. How do I report this.
If the funds were used only for qualified education expenses, you actually do not need to report it at all. Form 1099-Q is only required to be listed on the tax return when a taxable distribution occurs. If the funds were used to pay tuition, and there was not an excess distribution, then you do not have to report the distribution.
The instructions on the form itself point this out, albeit in rather a tiny type, often on the back (sometimes on the bottom half of the form it reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return."
The rules for what makes it taxable or not can get a little complicated, but generally, if she didn't also have scholarships or take credits that also covered expenses with the same funds, the distribution isn't taxable.
@shirlkoul In most cases, you can simply ignore the 1099-Q (don't report it at all). See KrisD15's reply for details.
But, you have to coordinate with the student and his/her parents. If they have used some of the tuition payments to claim a tuition credit, you may not use the same expenses to claim an exclusion of the 529 plan earnings.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship*
-$4000 used to claim the American Opportunity credit (on the parents return)
=$3000 Can be used against the 1099-Q ( on your return)
Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)
*Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.
Good morning. You said whomever the 1099-Q is issued to must report it, but you also said the student can report with the offsetting expenses. In my case the 1099-Q is issued to me, the parent. Can my students report it instead of me?
Q. In my case the 1099-Q is issued to me, the parent. Can my students report it instead of me?
A. No. The "recipient" (your name and $$# are on the 1099-Q) must report it.
Q. You said whomever the 1099-Q is issued to must report it, but you also said the student can report with the offsetting expenses.
A. That should read the recipient can report with the offsetting expenses.
For more specific help, explain what you're trying to do and Provide the following info:
__________________________________________________________________________________________
Qualified Tuition Plans (QTP 529 Plans) Distributions
General Discussion
It’s complicated.
For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.
You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.
Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship***
-$4000 used to claim the American Opportunity credit
=$3000 Can be used against the 1099-Q (usually on the student’s return)
Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)
**Alternatively; 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip! 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, in case of an IRS inquiry.
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."
***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.
Still trying to figure out education expenses:
My daughter received both a 1099-Q and 1099-T in her name and SSN. I am claiming her as a dependent, but she also had income from a summer job, so she's filing her own return. I've read varying opinions on who reports what on their returns. If my daughter includes the 1099-Q and I report the 1099-T, she ends up owing a bunch since I have all the education expenses on my return for which the 529 funds were used (reported on her return). It seems like both should be on the same return; the question is which one?
@kjwhitcomb said ". It seems like both should be on the same return; the question is which one?"
No, or at least not necessarily. Most likely the 1098-T goes on both your returns, with some modification.
Provide the following info for more specific help:
My daughter will receive a large tax free tuition scholarship. For the 2021 calendar year, it will be $17,500. We intend to take a non-penalty matching distribution from a 529 plan that is owned by her grandparents. She will have no other income to report. She can be claimed as a dependent on her parents return.
Is it correct that the earnings portion of the 529 plan distribution should be reported as unearned income on my daughter’s tax return? Is it correct that long term capital gains will have a 0% tax liability (because her earned income is less than $39,000), and that short term capital gains will have a 10% tax liability up to the first $12,000 in earnings? Can I expect earnings to be broken down into short- and long-term capital gains and dividends on her 1099Q?
Thank you - this all seems so complicated.