.Q. I understand now that the distribution and the expense payment should occur in the same year. Is this also part of the problem with my situation?
A. No. First term 2025 expenses paid in 2024 are QEE for tax year 2024.
"Previous years (1099-Q) showed nothing in box 1 and 2"
Do you mean nothing in boxes 2 and 3? If box 1 was empty that would men no distribution, so no 1099-Q would be issued. If you really meant nothing in box 1 and 2, what was in box 3?
"2024 boxes1 and 2 and they showed the same number ($38,612)" just ain't right. You have to calculate your cost basis, from your own records (and/or contact the plan administrator for help) or you going to have to treat the whole $8616 (as calculated above) as taxable.
