Q. Where does the $2,370.23 (box 2 of 1099-Q) come from?
A. Fidelity calculates that for you. It is the portion of this distribution than comes from earnings, not your contributions.
Q. Is this a portion of the $11,188 that is potentially taxable?
A. Yes
Q. Why is the university saying the payments were $9,481 (box 1 of 1098-T) when in fact we paid $11,188?
A. Box 1 is only Tuition and fees. No room and board, books or other expenses, including a computer.
Q. Are you saying that $5,857 (box 5 of 1098-T) is included in $9,481?
A. Yes. Box 1 is total tuition and fees, regardless of what money paid for them. The assumption is that the scholarship money went to tuition and fees.
Q. Again, why would they charge us $11,188 if that is the case?
A. Because the $11,188 includes all expenses, tuition and fees after scholarship plus room & board.
Q. The other numbers you've mentioned in your answer: $3594 and $7594... how did you calculate them?
A. Probably (the numbers are off a little) : 9481 - 5857 = 3594 and 11188 -3594 = 7594.
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There are three things you can do with your Qualified educational expenses (QEE):
- Allocate then to scholarships (so that the scholarship remains tax free)
- Use them to claim an education credit
- Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable
TurboTax allocates QEE, in that order, but it doesn't do a very good job if you want something different. TurboTax allocates QEE, in that order, until you tell it otherwise. It's best if you have some idea of the outcome expected, when you make your entries. Enter the 1099-Q before you enter the 1098-T. In addition to entering numbers, you must complete the “Education Information” sub-section. In particular, be on the lookout for a screen “education expenses used for a tax credit”. It will usually be prepopulated (sometimes with $10K instead of the more appropriate $4K). You can change it for the amount you want to allocate to the ed credit, including changing it to 0.
