Even though your 1098-T is in excess of the 1099-Q it is possible that you may not be entitled to any deduction for education credit. The correct way to make the determination if you are entitled to an education credit would be:
- Take the amount of your 1099-Q and your 1098-T.
- Subtract the 1099-Q from Box the amount in Box 5 of the 1098-T. You have to deduct the amount of scholarships/grants received from the amount of your 1099-Q.
- Take the amount of Box 1 of the 1098-T and subtract Box 5 of the 1098-T. The remaining positive balance is eligible for calculating your education credit.
- Now subtract the balance of the 1099-Q in paragraph 2 above from the amount of the 1098-T in paragraph 3 above.
- If the amount from paragraph 4 is positive, then this amount can be used towards the education credit. If the amount from paragraph 4 is a negative number then that amount needs to be reported as income. If the tuition is less than what you took from the 529 Plan and the Scholarships received, this amount must be reported as income.
In summary, when the amount taken from your 529 and reported on 1099-Q and the amount in Box 1 of the 1098-T less the amount in Box 5 of 1098-T then the difference of these numbers is TAXABLE.
