The thing is with the 1099-Q, it does not have to be reported. Funds distributed from a 529 Plan, will be reported by the bank on a Form 1099-Q. The 1099-Q is sent to the owner/recipient of the 529 Plan funds. The Form 1099-Q is to be reported as income if they were not used to pay qualified college tuition/ expenses. If the amount reported on the 1099-Q were used to cover qualified college tuition/expenses you do not need to report the income. If the amount exceeds the amount of college tuition/ expenses then the excess needs to be reported as other income on your 1040.
This is true for the 1098-T, if you are not eligible for the 1098-T because you took a distribution from a 529 Plan to cover your tuition/expenses, room and board, books, etc. then you do not need to report the 1098-T on your return.
To determine whether or not you need to report the 1099-Q and/or 1098-T, if the 1099-Q distribution is enough to cover the tuition in Box 1 and the room and board, other expenses you do not have to report either form as you would not be eligible for the 1098-T. We now have to determine how the amount of scholarships may affect the outcome. Subtract the amount of scholarships/grants in Box 5 of the 1098-T from the amount in Box 1. Is this amount plus the room and board and other qualified expenses still equal to or more than the amount of the 1099-Q? If so, you do not have to report the 1099-Q or the 1098-T.
On the other hand, if the amount in Box 1 is less than the amount in Box 5 where there is an excess of scholarship funds you may have to report this excess as income. If the tuition/expenses and the room and board and other qualified expenses are still equal to or more than the total amount of the 529 distribution you are still good and do not have to report either document unless there is enough excess that you may still qualify for the tuition credit. Now if the amount ends up being less than the 529 distribution, then you have to report this excess as income on your tax return. This can be done by adding the amount on Line 8f of Schedule 1 (other income) or you can enter the 1099Q and the 1098-T. If you choose to enter the forms, make sure you add the cost of room and board and other eligible education expenses. Qualified expenses are amounts paid for tuition, fees, and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution.
