Why does TurboTax continue to fail in handling 1099-Q and qualified 529 distributions?!!

[JillS56]

TurboTax is not failing on the handling of the 1099-Q and qualified 529 plans. 

The 1099-Q provides three key pieces of information. Box 1 reports your annual distributions or withdrawals from the account. The second box reports the portion of the distribution that represents the income or earnings of your initial investment. Finally, box 3 reports your basis in the distribution. Essentially, this is the amount of your distribution that relates to the original contributions you make to the account.

What should I do with Form 1099-Q? If you used all the money you withdrew from your QTP or Coverdell ESA to pay for qualified education expenses and meet other IRS requirements, the distributions are not taxable and you do not need to report them as income. Just file your 1099-Q with your tax records.

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 if the parent is claiming the student as a dependent.   In order for the parent to claim the education credit, the student must be claimed as a dependent.

In addition, the 1099-Q does not have to be reported if the funds were used for qualified educational expenses.    On the back of the 1099-Q it specifically states:

Instructions for Recipient Distributions from Coverdell education savings accounts (CESAs) under section 530 and qualified tuition programs (QTPs) under section 529, including rollovers, may be taxable. 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. See Pub. 970 and the Instructions for Forms 1040 and 1040-SR for more information. Also, see Form 5329 and its separate instructions

[kreinfam]

Having problems with this STILL in Feb. 2023 :(

I have to include the 1099-Q because of how our state handle the 529 distributions.

Hope I can figure it our.

[Hal_Al]

"I have to include the 1099-Q because of how our state handle the 529 distributions."

What state? And what is it that you think the state wants?

[wk36]

Alternative 1

1. Go to Forms
2. Open up Student Information Worksheet (found under Dependent Worksheet)
3. Go to Part VIII Line 2h - first column
4. Enter amount that is on Line 2h in the second column
   
5. Problem should now be fixed and the 1099-Q distribution should not be taxed

Alternative 2

1. Go to Forms
2. Delete the Form 1099-Q Worksheet (Form 1099-Q Summary will still be there)
3. Problem should now be fixed and the 1099-Q distribution should not be taxed

Alternative 3

Do not report the 1099-Q in Turbo Tax.  It is not required and is just an informational form.  Form 1098-T is also just informational.  (1099-Q distribution only needs to be reported if it is not for qualified tuition expenses.)

[cabb2000]

There are multiple ways to work around this, but I think it's easy enough to have the software address this correctly if the information is entered as there are times when it is required.  I'm having the same issue with the tax being figured incorrectly.  In my case, the root cause appears to be the education tax credits and what happens if you don't qualify because of your income.  The software appears to first attempt to see if you qualify for a tax credit because it's more beneficial, so far so good.  The problem seems to be that once the tax credit is disqualified, turbotax doesn't use the tuition (and it shouldn't if you have a tax credit) in the 1099-Q calculation so it underrepresents your deductions, says you took an excessive distribution from your 529 and therefore owe taxes.  This is a very simple code fix, which with any luck turbotax will undertake.

[MarilynG1]

If you know that your 1099-Q distribution was used for Education Expenses, you are not required to enter it.  Particularly, if you also know that you don't qualify for a credit.  In that instance, you also don't need to enter the 1098-T either.

Here's more info about Form 1099-Q.

The calculations become more complicated when there is a 1099-Q distribution that partly covers expenses, and also scholarship/grant income, and the AOTC is also desired.  You can delete the Student Info Worksheet to remove all calculations that are causing an issue.

@cabb2000 

[cabb2000]

Thanks.  Limits are always changing as are tax rules.  I chose turbotax so that I don't have to do that research.  I can count on turbotax to do it for me.