This is my solution to match the description above:
T = marginal tax rate (9%)
A = Adjustment amount to enter
P = penalty (2.5%)
E = Earnings
Enter an adjustment amount so that the adjustment times the marginal tax rate yields the same amount of tax that would be incurred at the marginal tax rate plus the 2.5% penalty.
E * (T + P) = A * T
A = (1/T) * E * (T + P)
= E * (1 + P/T)
= E * (1 + 0.28)
= 1.28 * E
So enter 1.28 * the earnings amount as the "Expanded use of 529 funds" adjustment.
