Starting in 202, 529 plan account owners may now withdraw up to $10,000 tax-free for payments toward qualified education loans; however, TurboTax is not giving me credit for the $10,000 payment I made. This is making my 1099-Q income much higher in Other Income, plus the additional 10% tax for "non-qualified" 529 plan distributions.
I entered the loan payment in the interview sections and then reviewed all the forms when I was getting a large amount of tax due. I found that the 1099-Q Payments Worksheet (QTP Computation of Taxable Distribution) is wrong, as it isn't giving me credit for the loan payment. Line 2a "Qualified Loan Payment" is blank. This results in $5,829 of 1099-Q income. However, if I go to the Student Info Worksheet, Part VIII (QTP - 529 Plan) the $10K loan payment is there, and that results in the CORRECT amount of $717 taxable 529 earnings. But the latter doesn't feed the Other Income section of Form 1040. The only way I could get it to adjust was to override the boxes in Form 1099-Q Payments Worksheet (QTP Computation of Taxable Distribution) Line 2a "Qualified Loan Payment" to add the $10,000 loan payment amount, which in turn adjusted the Other Income amount to $717 and the 10% tax to $72.
What is driving this problem? Is it an error in TurboTax? How do I fix it?
