Q. I was told we don't qualify for education credits due to high income. Is 1099Q taxable?
A. No. Although there is an income limit for claiming a tuition credit, there is no income limit for a 1099-Q (529 plan distribution) to be tax free.
So, not being able to claim a tuition credit just frees up more education expenses to be applied to the 1099-Q.
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
