Earnings reported on 1099-Q (box2) are being treat...
New Member

Earnings reported on 1099-Q (box2) are being treated as taxable income for beneficiary even when entire distribution was paid directly to University for QTP

I am filing my tax return as an individual who can be claimed as dependent on my parent's return. My parents are owners of the 529 plan of which I am the beneficiary . The 529 plan made a distribution directly to the university for a QTP. But when I enter information from the 1099-q I am being taxed on the amount reported in box 2( earnings). FYI all of the distribution went directly to the school and earnings on 529 plans should not be taxed. Yet Turbo-tax calculates this as taxable. How can this be fixed?

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New Member

Retirement tax questions

when my parents enter the 1099-Q information on their return they are informed that the beneficiary (myself) needs to add the 1099-Q information and report earnings.
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Level 4

Retirement tax questions

OK, so if they are using the expenses for a credit, the earnings on the distribution are taxable to you. The IRS does allow Taxpayers to claim the distribution as income, even when it went directly to the school.  You do not have to pay any penalty tax on the distribution, only the income tax. Ask your parents if you need to claim all the distribution or only a portion. If they used TurboTax, it would tell them how much you need to claim as income.According to the IRS: “The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses aren't used for both benefits. This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit.
Example. Derek Green had $5,800 of qualified higher education expenses for 2017, his first year in college. He paid his college expenses from the following sources….
…Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return.
Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses.”
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Level 9
Level 4

Retirement tax questions

Do not enter the 1099-Q if the distribution was used for education expenses. You do need to check with your parents first. If you have expenses to apply towards the distribution, you do not claim if, HOWEVER if your parents used the education expenses for an education credit on their return, you do report the distribution amount as income. 

Normally the parents report the 1098-T and apply the 1099-Q. If any of the distribution from the 1099-Q is taxable, the student claims the earnings and pays the tax. If the distributions are applied to the expenses, the 1099-Q is not reported. The education expenses can only be used once, for a credit or against the distribution. Everything is based on what was paid in the tax year. 

CLICK HERE for IRS Pub 970 Education Credits

https://ttlc.intuit.com/replies/4194409

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