If I understand it, the part of a 529 earnings distribution withdrawn that is in lieu of a scholarship received by my dependent son has to be claimed as income if it isn't used for educational expenses, but there is no penalty on it. I can't figure a way to make turbotax do this correctly. I've entered my 1099-T and 1099-Q related to this account but the numbers don't add up. It should be this simple:
1099-Q
Box 1: $13583
Box 2: $8006
1098-T
Box 1: $27166 (total received by college, including scholarships)
Box 6: $14000 (total scholarships received)
$7000 of 1099-Q Box 1's were distributed to me in lieu of scholarship
Amount to add to income should be:
Scholarship/Total Distribution = Scholarship ratio
Earnings attributed to scholarship = Earnings * Scholarship Ratio
7000/13583 = 0.515
Earnings Adjustment = 8006 * 0.515 = $4123
However, Turbotax only adds $2943 on line 8 schedule 1
It's interesting, when entering the 1099-R , Turbotax never asks me if all or part of the distribution was used to pay for tuition for my dependent.
