Why is my daughter 1099Q income showing up as taxable? It should be offset by 1098T, but because she is my dependent, it will not take 1098T information...broken?

[MSU-Fan1]

in order to get the software to do what I think it should be doing, I had to indicate that she was not claimed as a dependent on someone else form, then the 1098T offsets the 1099Q and looks right, but that means something is not right in your software, or not intuitive enough?

[Anonymous]

There are so many different rules, exceptions, credits, and even definitions of "qualified expense" depending on the circumstances that this section of TurboTax (or almost any program) is probably the most complicated.

If you are certain that the income shouldn't be taxable, because it all went to qualified expenses (which for income reported on a 1099Q can include things like room and board) then the very best thing to do is remove the 1099Q completely.  You are only required to enter it if you have taxable income to report (it actually says this on the form itself in the fine print.)  

Many people will enter it into the software for assistance making that determination (is it taxable, or does it reduce my credit), but if you already know that's not the case, just delete it and hang on the form with your other important papers. 

[KrisD15]

If the student is your dependent, enter the 1099-Q and 1098-T into YOUR TurboTax program so that the program can do the math. 

If it generates a credit, you'll get the credit. 

If it generates taxable (potentially) income, the student needs to claim the income. 

(in which case your program will tell you how much the student needs to claim) 

Be sure to enter the information of your dependent first, then the 1099-Q and lastly the 1098-T. 

Go through the education interview until you get to "Maximize My Tax Break".

Be aware that TurboTax may suggest the student claim income from the 1099-Q if it frees up expenses for the credit. 

You can type   letme   into the search to view the credits available and change the selection.

You can also go though the education interview to see what the program is allocating to the credit and change the allocation if you wish. 

@MSU-Fan1

[Hal_Al]

Provide the following info for more specific help:

• Are you the student or parent.
• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Box 1 of the 1099-Q
• Box 2 of the 1098-Q
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
• Room & board paid. If student lives off campus, what is school's R&B charge
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources

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.

[JRpFA96]

Turbo Tax is taxing me on the 1099 Q distribution that was used for my daughter's college tuition.  She is my dependent .  When I put in the 1098 T, it would not let me use any of that expense because of our income

[Hal_Al · Accepted solution]

   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." 

[swkorb]

I'm confused by this as well.  We are paying for my daughter's college expenses via a 529 plan.  We have received the following forms in 2022:

• 1099-Q in my daughter's name
• separate 1099-Q in my name
• 1098-T in my daughter's name

It sounds like there is not a requirement to report any of these forms on my return, is that correct?  If so, should I be reporting these forms, to determine if I qualify for a credit for all of the expenses we incurred this year related to my daughter's college last year, even if those payments came from a 529 plan?

[swkorb]

p.s. the 2022 gross distribution from my daughter's 1099-Q ($20,358) and my 1099-Q ($1994) totaled $22,352.  We paid her tuition and room/board via the 529 for all those expenses last year. 

[Hal_Al]

Q. It sounds like there is not a requirement to report any of these forms on my return, is that correct? 

A. Yes.

Q. If so, should I be reporting these forms, to determine if I qualify for a credit for all of the expenses we incurred this year related to my daughter's college last year, even if those payments came from a 529 plan?

A. Yes. 

There are three things you can do with your Qualified educational expenses (QEE):

1. Allocate then to scholarships (so that the scholarship remains tax free)
2. Use them to claim an education credit
3. Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

TurboTax allocates QEE, in that order, until you tell it otherwise. TurboTax allocates QEE, in that order, but it doesn't do a very good job.  It's best if you have some idea of the outcome expected, when you make your entries. 

Provide the following info for more specific help:

• Are you the student or parent.
• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Box 1 of the 1099-Q
• Box 2 of the 1099-Q
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
• Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents.
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources
• Are you trying to claim the tuition credit (are you eligible)?
• Is the student an undergrad or grad student?
• Is the student a degree candidate attending school half time or more?

[swkorb]

Thank you so much @Hal_Al here are the answers to your questions:

• Are you the student or parent. Parent
• Is the  student  the parent's dependent. Yes
• Box 1 of the 1098-T $15,014
• box 5 of the 1098-T $5042
• Any other scholarships not shown in box 5 No
• Does box 5 include any of the 529/ESA plan payments (it should not) No
• Is any of the Scholarship restricted; i.e. it must be used for tuition It is tied to tuition I believe
• Box 1 of the 1099-Q My daughter's 1099-Q form=$20,357.72 My 1099-Q form=$1993.94 
• Box 2 of the 1099-Q My daughter's 1099-Q form=$7771.66 My 1099-Q form=$755.42
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)? One in my daughter's name, one in my name
• Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents. She lived on campus for all of the 2022 calendar year.
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers We did incur expenses for books/supplies, I would need to gather totals for those expenses.
• How much taxable income does the student have, from what sources Her 2022 AGI was $11,048, from a part-time jobs
• Are you trying to claim the tuition credit (are you eligible)? I'm trying to determine if I'm eligible to receive a credit.  If it doesn't look like I am, I'll forego entering the 1099-Q and 1098-T forms this year.
• Is the student an undergrad or grad student? Undergrad
• Is the student a degree candidate attending school half time or more? Yes, full-time student pursuing degree

[Hal_Al]

Q. It sounds like there is not a requirement to report any of these forms on my return, is that correct? 

A. Yes, if the entire distribution was covered by qualified expenses.  We need to know the room and board and book and computer expenses to make that determination. 

Since the scholarship is restricted to tuition, only $9972 (15,014 - 5042) of the tuition is available for the 1099-Qs or the Tuition credit.

 "I'm trying to determine if I'm eligible to receive a credit. 

Basically, you are eligible for the credit if your AGI is less than $90K ($180K jointly).  The American Opportunity Credit (AOC) is worth $2500 and only takes $4000 of tuition to claim. That might result in your student paying about $300 on the 529 distribution. 

[swkorb]

Ok @Hal_Al so if I decide to move forward in pursuing one or both credits, can that be handled by me entering all of the info from all three forms (1099-Q/1098-T in my daughter's name, and 1099-Q in my name) on my 2022 tax return?  If I enter all of that in the form entry locations provided by TurboTax, will TT calculate everything and prompt me to enter the missing pieces of the puzzle (Room/Board expenses, books/supplies expenses, etc.)?  Thanks again!

[Hal_Al]

Q. Ok @Hal_Al so if I decide to move forward in pursuing one or both credits, can that be handled by me entering all of the info from all three forms (1099-Q/1098-T in my daughter's name, and 1099-Q in my name) on MY 2022 tax return? 

A. Probably not.  Your 1099-Q amount doesn't look large enough for all the hit. Her's will probably be partially taxable. As such, it must go on her return, not yours. 

Q. If I enter all of that in the form entry locations provided by TurboTax, will TT calculate everything and prompt me to enter the missing pieces of the puzzle (Room/Board expenses, books/supplies expenses, etc.)? 

A. Theoretically,  yes, but not really, especially the "prompting" part.  But don't let that have you leaving $2200+ on the table.  I can give you the necessary (relatively) simple workarounds. 

[swkorb]

A. Probably not. Your 1099-Q amount doesn't look large enough for all the hit. Her's will probably be partially taxable. As such, it must go on her return, not yours.

Q. Unfortunately a complication with that - when she was home from school a few weeks ago, we completed and submitted her return without including these forms.  Would I be looking at an amended return for her, if we decided to pursue the credit? 

[Hal_Al]

Q. Would I be looking at an amended return for her, if we decided to pursue the credit? 

A. Probably.  It depends on how high the room, board and book numbers are.  That total would need to be more than $14,000 to avoid an amended return (eye ball estimate).