I'm having the same problem as ingridL999.
I have a 1098-T : box 1 = $51,920; box 5 = $10,000.
TurboTax desktop is treating the scholarship as taxable. In actuality, the $10,000 scholarship was deducted from the tuition bill, which I paid, and is represented in box 1 of the 1098-T form.
I can't find a way to fix this.
@Intuit, what do I do? It looks like a bug in your software to me.
Are you a dependent on someone else's return?
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In addition to box 1 ($51920) and box 5 (10000) of the 1098-T, please provide the additional info
- amount in box 1 of the 1099-Q
- amount in box 2 of the 1099-Q
- other expenses like books, computers and software
- room and board
- who's name ad SS# are on the 1099-Q
- Is your income too high to qualify for the Americana opportunity credit ($90k, 180K married)
The $10,000 scholarship would not be taxable on your return. Some of the 1099-Q (box 2) might be. Youre most likely going to have to delete the ed info (see above) and start over.
For a full discussion, see below
Qualified Tuition Plans (QTP 529 Plans)
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.
$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
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.
***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.
Thanks for your thoughtful reply. I believe there is a bug in the way Turbo Tax calculates total qualified education expenses on the 1099-Q which I will expand upon shortly.
To answer your questions:
> 1098-T box 1 ($51920) and box 5 ($10000)
> 1099-Q box 1 ($52,628)
> 1099-Q box 2 ($31,923)
> Other expenses: room and board ($2,000)
> Dad is recipient so Dad's name and SSN are on 1099-Q. Dad pays the college bills through his checking account and is reimbursed by the 529.
> Is your income too high to qualify for the Americana opportunity credit ($90k, 180K married): yes my income is too high but this is not applicable as I am not using the Americana opportunity credit.
My 1098-T box 1 is $51,290 and my student had additional room and board expenses of $2,000 (not included in the 1098-T) so my qualified tuition and related expenses should be $51,290 + $2,000, or $53,290.
If I look at TurboTax's Form 1099-Q on page 3 of the "Qualified Tuition Program Computation of Taxable Distribution Table" I see that line 2c "Adjusted Qualified Higher education Expenses applied" is $43,920. This is exactly $10,000 short of what it should be and exactly matches the student's $10,000 scholarship. In other words, TurboTax is reducing my qualified higher education expenses by the scholarship amount which means TurboTax is reporting that I owe income taxes on that scholarship. That can't be correct.
In addition, I have another student in college who does not have a scholarship. She has a 529 like her brother. TurboTax correctly calculates her total qualified education expenses... because she does NOT have a scholarship.
Add these data points to the reports from other users (posted above) and I can only conclude that TurboTax has a bug related to the calculation of total qualified education expenses on the 1099-Q form.
@Intuit: can you please post a message that you are investigating this?
For a full discussion, see below
TurboTax appears to be doing it correctly. It is not taxing the $10,000 scholarship. Instead, it is reducing the qualified expenses because $10,000 of those expenses were paid by tax free scholarship.
So, 43,920 / 52,628 = 83.45% of the box 2 (1099-Q) is tax free. 0.8345 x 31923 = 26,641. You have 31,923 - 26,641 = $5282 of reportable income. That should show on that "Qualified Tuition Program (QTP) Computation of Taxable Distribution" worksheet (page 3 line 7).
Note the alternative, at my earlier post: have the student report $10,000 taxable scholarship on his return. If he has no other income, the tax will be 0. You then avoid tax on the $5282.
Hi Hal -
Thanks again for your thoughtful reply.
Let me clarify: Box 1 of the 1099-Q ($52,628) already includes the $10,000 scholarship which was awarded by the same University my son is attending; the university reduces our tuition by that amount before we are billed. (The University simply used the scholarship money to reduce the tuition by $10,000.) Without the scholarship, Box 1 would have been $62,628. Our $52,628 is our actual qualified educational expense.
Can you see why I believe that this is a bug in TurboTax?
I generally try to stay out of threads that already have a choir of responses. But I have to ask the question;
What specifically and explicitly is that $10K difference for? The student needs to log into their online college account and go to the financials section to get a detailed breakdown of:
- All income received by the school from all sources "in tax year 2019."
- All expenses that income was applied to "in tax year 2019".
Remember, scholarships/grants are reported in the tax year they are received, and it does not matter what tax year it may be "for". Likewise, qualified expenses are claimed/reported in the tax year they are paid, and it does not matter what tax year is paid "for".
If that 10K difference is applied to anything other than tuition, books and lab fees, then it's taxable income to the student. For example, if the student is an RA and are compensated with free rent in the on-campus housing, that "Free" rent is compensation, and therefore taxable income to the student.
@johnsonweb - You say "Box 1 of the 1099-Q ($52,628) already includes the $10,000 scholarship". I think you mean box 1 of the 1098-T. Then, you say "Without the scholarship, Box 1 would have been $62,628. Our $52,628 is our actual qualified educational expense." That may be correct, but it is NOT the way schools usually do it. And that is why TT is doing it that way. The box 1 amount usually includes all tuition paid, whether by the student/parent or scholarship or loans. You need to verify that against your financial records.
If you are correct, the solution to your problem is real simple: just delete the 1099-Q (don't enter it at all). None of it is taxable. If you insist on entering it, In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. Enter $62,628.
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."
I am having a similar problem for our 2020 state taxes. The federal Turbo Tax appears to be handling the 1098-T scholarship money correctly. However, the Alabama state Turbo Tax appears to be taxing the scholarship funds used for (out-of-state, grad school) qualified tuition.
AL is one of the the few states where you define the income to be taxed in AL. Most states begin with the federal income. When you go through AL, you should be able to mark the money as not taxable. The program will ask about your different incomes. It comes to a section that says Federal Income not Taxed by AL, that would be a last resort to mark the income as not taxable and back it out.
Please review your AL return and make sure it is taxing the scholarship. AL does not tax scholarships that are not taxable to the federal. See How do I preview my TurboTax Online return before filing?
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Bottom line up front: 1) Find the Your Education Expense Summary and edit student to enter the 1098-T data (boxes 1, 5, 7-9), and then 2) go back and confirm the tuition section is correct. Using the TT search to link to this 1098-T entry for step 1 will not work, but will take you to step 2.
Fixed: I was having that same issue in preparing 2020 taxes. I fixed ran across our mistake when I was attempting to erase the education entries as suggest by a reply from last year. I has zeroed out my son's entry of his scholarship money, and later I went to delete the student entry under the heading "Your Education Expense Summary". I selected edit and realized this is where the 1098-T information should be entered, which is not the location that TT's search for 1098-T will send you. I believe he missed this entry because it may have been auto-populated from last year's TT form. When I went back to his original entry, I see that space was for additional scholarships. Moving the expense before the scholarships would have help tremendously. Missing this would have cost a few thousand dollars between federal and state.
Thank you for the feedback. Ends entering the data as a 1098-T was not very clear, and my son had entered it as an additional scholarship. As you suggested, it was an entry mistake, and the erroneously entered scholarship was being taxed federally, too.
Thanks to all who came across and posted. It is definitely a defect. I deleted my student and entered the info with the 1098T first and the 1099Q second. and it worked... no more taxable income notifications.
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