Q. What do I need to do to get this corrected?
A. Delete the 1099-Q. It is only an informational document. The numbers on it are not required to be entered onto your tax return.
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 (TT) will enter nothing about the 1099-Q on the actual tax forms (nothing is reported to the IRS). But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. 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."
Basically, there's a flaw in TT. It uses some of the expenses for the tuition credit even if you are not eligible.
If you try to force the 1099-Q into TT, I don't think you will be allowed to continue in the free edition, even though no additional IRS forms are generated.
