This seems to be a Turbo Tax bug, or maybe faulty reporting from the 529 plan provider. I had a similar issue. I had two 1099-Q forms which were handled differently by Turbo Tax. Here is my scenario:
1) I had a 1099-Q from a 529 plan where I was listed as the recipient, but my son is the beneficiary. In the case of the 529 plan, there was a $1,000 amount listed in box 2 ("Earnings"). When I selected myself as the recipient, Turbo Tax treated the earnings as income. When I selected my son as the recipient, it said that my son needed to treat the earnings as income on his tax return.
2) I also had a 1099-Q from a Coverdell Savings Account wherein the 1099-Q was issued with my son as the recipient (with myself as "Guardian"). For the Coverdell 1099-Q, box 2 ("Earnings") was $0.00 - even though I definitely gained money on the account compared to what I put into it. In the case of the Coverdell, the proceeds were not at all treated as income.
In BOTH cases, the proceeds were clearly used for education expenses, as per the 1098-T form that my son's college sent, where the box 1 amount was clearly greater than the sum of both 1099-Q's together.
In the case of the 1099-Q from the 529 provider, either they should not be reporting earnings in box 2 or Turbo Tax is not handling this correctly, as I am reasonably sure that those earnings should not be taxable when they are used for higher education purposes.
