In 2019 I had to go into forms to override the TT errors that taxed the gross distributions for a qualified institution expense as income - if I didn't notice the taxes owed increase/error I would have Stupidly paid $3,000 more in taxes because of TurboTax. 2020 Deluxe - same exact problem, error, and frustration. Is the only way to correct the bad TT process, to go into Forms and correct??
I have found the best way to treat the 1099-Q distribution in TurboTax is to enter the distribution first, then enter your form 1098-T expenses and scholarship income. That way, you will be asked to enter your room and board expenses, which may not appear if you enter your form 1098-T expenses first.
If you enter things in this order, your income reported on your 1099-Q should be properly accounted for in TurboTax.
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. 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.
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."
It's a complicated situation and the interview, by necessity, is complicated. But when the info is entered correctly, TT does handle it correctly. But, it's a good idea to review the worksheets and may actually be easier to make the corrections there, as you did (not available to online users). In particular, TurboTax usually assumes you will claim a Tuition credit. So it reduces the amount used for the earnings exclusion, on the 1099-Q, for the amount used for the credit. When you get to the screen, in the interview, titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.
You are not allowed to double dip. You cannot claim expenses for the 529 distribution that were used for the tuition credit or were covered by tax free scholarship. Sometimes part of the 529 distribution ends up being taxable, even though it's the same amount as the expenses.
________________________________________________________________________________________
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. Most people come out better having the scholarship taxable before the 529 earnings.
Crazy! Same thing just happened to me. Had already entered 1098-T and then entered 1099-Q. The 529 contributions were already taxed and all distributions were used for tuition. TurboTax mis-calculated and increased taxes and reduced refund. This is clearly not correct. I went from getting a substantial refund to owing money. Called TurboTax and they said to enter 1098-T and delete 1099-Q. This is BS. I've been a TurboTax user every single year since the 80's and since I switched to TurboTax on-line, the product has gotten worse every year. Way more clicks and useless screens of information to navigate through that add no value other than trying to extract more money from my pocket for Intuit.
I'll bet many less astute customers are over paying taxes due to this.
We paid my son's college expenses for 2020 and have entered the 1098-Ts (2) under our taxes. I am entering the 1099-Qs (2) on his taxes as his SSN is on these forms as the "recipient". Upon entering the 1099-Qs on his taxes, it appears to report the amounts from these forms (or a portion of them) as taxable income. The 1098-T qualified expenses are significantly higher (double) than the combined 1099-Qs amounts, yet his taxes reflect that he is having to pay taxes? This doesn't seem correct. Any thoughts? I am happy to share exact numbers of more details if needed. Also, we had already had 4 years of the AOTC so our taxes reflect a $2000 tuition credit if that helps. Thank you for any advice you can offer.
What if the 1098-T and the 1099-Q forms are on separate tax filings (parents / child)? How would you resolve this issue in this scenario? (We paid my son's college expenses for 2020 and so we have entered the 1098-T under our taxes. I am entering the 1099-Qs (2) on his taxes as his SSN is on these two forms as the "recipient". Upon entering the 1099-Qs on his taxes, it appears to report the amounts from these forms (or a portion of them) as taxable income. Our qualified expenses on the 1098-T are significantly higher (more than double) than the combined 1099-Qs amounts, yet his taxes reflect that he is having to pay taxes? This doesn't seem correct. Any thoughts? I am happy to share exact numbers of more details if needed. Also, we had already had 4 years of the AOTC so our taxes reflect a $2000 tuition credit if that helps. Thank you for any advice you can offer.
I'm not a tax expert/professional. I just noticed that when I entered the data, the tax refund dropped. This shouldn't have happened because I already paid the tax on that income and the gains are tax free when used for approved college expenses, which they were. So I knew something was wrong. After a lot of searching, I discovered this is a known problem with TurboTax. I also discovered it got it wrong last year and filed an amended return. I'm not happy TurboTax didn't get me the maximum refund like they advertise. I just checked all the guarantees and there seem to be just enough weasel words to avoid any refund unless switching to another tax package that actually gets this correct. Ain't nobody got time for that! Maybe next year.
The 1098-T is only an informational document. The numbers can be entered (or not entered) and/or adjusted as needed. That is, you can enter them on both your return and the student's return.
Since you used $2000 of tuition on your return, reduce the box 1 amount by $2000, when you enter it on his return.
The 1099-Q is also only an informational document. The numbers are not required to be entered in TurboTax.
When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax (TT) will enter nothing about the 1099-Q on the actual tax forms.
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."
Since you know none of the 1099-Q is taxable ("Our qualified expenses on the 1098-T are significantly higher -more than double- than the combined 1099-Qs amounts"), just delete the 1099-Q.
Thank you for your response. I did not realize you could enter the 1098-T amounts in the separate tax filings for both our taxes and my son's. When I enter the 1098-T, in his taxes, the Fed and State refunds return to the same amounts prior to me entering the 1099-Q figures. So, that makes sense and I hope it is correct (it seems to be to me). Thank you again for your suggestion. Much appreciated!
Ugh. I have spent the last two hours dealing with this. My son had some income in 2020 so we used TT to work on his returns which asked for the 1099-Q info (of which he is the beneficiary because Fidelity paid the school directly) but it prevented him from entering college expenses because he is a dependent on our taxes. The result was that he had an additional "$2,000" in income that he owes taxes on according to TT - which makes no sense at all.
@dfell12 Being a dependent should not have prevented him from entering his expenses. It only prevents him from claiming a credit or deduction.
In TurboTax (TT), enter at:
Federal Taxes Tab (Personal for H&B version)
Deductions & Credits
-Scroll down to:
--Education
--Education Expenses
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 would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
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."
You can do a quick estimate to see if you even need to enter 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 $2800
3000/5000=60% of the earnings are tax free; 40% are taxable
40% x 2800= $1120
You have $1120 of taxable income
Thanks. Here is what I ran into on the TT screen. Let me know what the workaround is to enter education expenses because I couldn't find one.
That screen doesn't say that you didn't enter expenses, it just says he can't claim a credit.
Look at the student information worksheet to see if the expenses were used in calculations.
I always follow through on Turbo Tax questions and it NEVER handles these distributions correctly.
Thank you for your very helpful and comprehensive post! 2021 will be my first year accounting for a 529 withdrawal and this will help me greatly.
Hello, I have 3 kids in college with 1099-q. Why does turbo tax allow me to put the 1099q on our return and let’s me choose what child it goes for when TurboTax says in its help menu that 1099-q must go on the students return due to the ss number. It is easier this way as expenses are already documented.
also I read on this thread that you can have the 1098t on both the parents and the students return to correctly enter the 1099-q if they 1098-t is on the parents return???
thanks for your help.
I just posted a question on the bottom
of this thread, can you look at at it and reply. Thanks for your help and knowledge.
@abcdefghijk said "also I read on this thread that you can have the 1098t on both the parents and the students return to correctly enter the 1099-q if they 1098-t is on the parents return"
Yes, but not exactly. The 1099-Q can only be reported on the recipient's return* (see above for definition of recipient). The 1098-T can go on both returns, but must be adjusted for amounts used on the first return. If there are sufficient expenses, the 1099-Q does not need to be reported at all (see details above).
*In TurboTax (TT), you can enter the 1099-Q on the parents return, even when the student is the recipient. TT will then inform you you need to need to enter on the student's return.
Thanks so much…. But Why does turbo tax allow me to enter 1099-q for my student even choosing their name though on our return? Is says it this 1099-q for child A? And I say yes and choose the correct name on our return… confusing
Depending on other details, of your return, TT may ask who is the student, who is the beneficiary, who is the recipient. It gets confusing.
So if TurboTax does this is it ok to include it on ours or no??? Each 1099 is assigned to the correct student etc.
So if TurboTax does this is it ok to include it on ours or no??? Each 1099 is assigned to the correct student etc.
also if entering. 1098-t on both how do you adjust accordingly. Thx a ton! Really appreciate your help
Q. So if TurboTax (TT) does this is it ok to include it on ours or no???
A. No. The 1099-Q gets entered on the recipient's return, if it needs to be entered, at all. If TT is entering on your return it's because you told it that you are the recipient.
You may have to delete the 1099-Q and start over.
For most families, the 1099-Q does need to be entered at all because it was all used for qualified expenses (tuition, fees, books, computers, room and board (food and housing). But if you need to use some of the same expenses to claim a tuition credit, then you'll have to calculate the taxable portion of box 2 of the 1099-Q. TT will do this with careful entry of the data.
Q. If entering the1098-T on both how do you adjust accordingly?
If entered correctly, TT will do this automatically, but not reliably. So, you need to verify that it happened. On the student's return, 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 (usually $4000). TT notoriously wants to use $10,000 for the Tuition credit rather than $4000.
If TT doesn't assign an amount, you'll have to use a workaround. Using an example, if the parent is using $4000 of tuition to claim the American Opportunity Credit, the student reduces box 1 of the 1098-T by $4000 when he enters it on his return.
Thank you so much. Really appreciate it.
for the 1098-t- let say’s it is 8000 for box 1 - 4000 used for aotc. So when I put it on my child’s I then include $4000 in box 1. Can his books and materials also be put on his return as well or no because those are on our return for his expenses?