The 1099-Q has to be entered. Then when the 1099-T is entered, as you Continue through the interview for education expenses, you are asked how much of the expenses you want to apply to education credits. You can only use the expenses for a credit or to make the 529 distribution nontaxable, not both. Apparently you didn't answer this question or answered it in a manner that did not leave enough expense to cover the whole distribution. The most you need to maximize education credits is $4,000.
See lines 17 and 18 of this Student Information Worksheet. Click Forms on the upper right, then the worksheet on the left.
