Q. Are the earnings still taxable even though they went straight into a 529 plan?
A. Yes. Technically, a rollover is not permitted, since the ESA was not permitted. So, you had a distribution* from the ESA and a separate contribution to the 529. *Technically a contribution return.
Q. If so, how do we report them on our tax return?
A. That's not allowed since the 1099-Q was in the child's name (it probably shouldn't have been).
If the earnings (box 2 of the 1099-Q) were less than $1100, and the child has no other income, the 1099-Q does not need to be reported, because the child does not have enough total income to be required to file a tax return. Fuhgeddaboudit.
