If you entered the 1098-T first, the program might allocate the expenses toward a credit. Then, when the 1099-Q is entered, there are no expenses left to allocate towards the distribution.
It has been my experience that the program will allocate 10,000 towards a credit. The American Opportunity Tax Credit maxes out at 4,000, the Lifetime Learner at 10,000.
Please go back through the education interview, there should be a screen that states "Maximize my tax break". If you click this, the program will decide how to allocate the expenses, and the distribution might be taxed.
The last screen should show how much expense is used for a credit and you can change it. Lower the amount by the amount of the distribution if you don't want the distribution taxed.
"Please go back to the "Education" section. (Federal, Deductions & Credits, Scroll down to Education).
Get to the "Education Information" section (the last option on the "Here's Your Education Summary" screen).
Re-answer the interview questions until you get to the last screen. This screen should show how much of the education expenses are being allocated to a credit.
If you are eligible for the American Opportunity Tax Credit (usually the more valuable credit), the credit maxes out at 4,000 expenses, so you wouldn't want to allocate more than that.
If you are taking the Lifetime Learner's Credit, the credit maxes out with 10,000 expenses.
If you want all the expenses to be applied to the scholarships/grants/1099-Q distribution, change the amount to 0."
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