I am a bit confused about the way that TurboTax is handling our qualified education expenses when trying to apply them against 529 distributions reported on 1099-Qs.
Here is my situation:
- My dependent, 21-year-old son is attending college.
- In calendar 2021:
- $28,356 was billed by the school for tuition and fees.
- $4,350 of this was covered by scholarships and grants. This amount was reported on the 1098-T received from the school.
- $24,008 was paid by the parents to the school for the remaining tuitions and fees. This amount was also reported on the 1098-T received from the school. [Note that this does net to a $2 over-payment.]
- $23,900 in gross distributions were made from two separate 529 accounts to cover these payments made by the parents. $2,599 was reported on a 1099-Q under the father’s social security number (SSN) while the other $21,302 was reported on a 1099-Q under the student’s SSN. [Note that the total of the payments made exceeded the amounts drawn from the 529 plans by $108.]
This fact set means that the $23,900 total distributed from 529 plans and reported on 1099-Qs is about $108 less than the tuition and fees billed by the school that were not covered by scholarships and grants. And please note that none of the amounts above include any of the additional costs for books or room & board that the parents also paid in 2021.
I entered the 1098-T received from the school on the tax return that I am preparing for us (the parents) in TurboTax. I also entered both the 1099-Qs on our return and I did properly identify the one that was issued under our son’s SSN as being issued that way. After making these entries in TurboTax, it said that I was not eligible for any tax credits but that that the student would have to report $1,155 of taxable income from his distribution on his own return.
Why would he have any taxable income? The qualified educational expenses not covered by the scholarships/grants exceeded the total of the gross distributions made from the 529s and reported on the 1099-Qs. So, why would any of that be taxable? And, since qualified educational expenses can include books (and I think even some room and board expenses), where can those expenses be entered into TurboTax in order to have them added to the qualified education expenses total?
My son will also be doing his own tax return for his W-2 wages from a job using TurboTax. Could he just safely not report the 1099-Q under his SSN on his return? Or is that not recommended since the 1099-Q is sent to the IRS? Or can he somehow manually enter additional qualified educational expenses to cover that $1,155? [As a side note, I cannot figure out what the math might be for the $1,155 taxable amount calculated by TurboTax.]
