Where do I note that I used my 1099-Q distribution for qualified Education Expenses?

[svongeck61]

As I understand it, you do not have to recognize gain from a qualified education account as long as the distribution was made for qualified education expenses. I noticed when I added the information from my 1099-Q that my tax liability increased. Where can I note that I used that money for qualified education expenses so that I am not taxed on that distribution?

[bigvcl]

Is this answer the same if the filer is the student but the parent claimed the student as a dependent
?

[Hal_Al]

Yes.  The $240 (in the example) of taxable income goes on the student's return.
If he has more than $2100 of  investment income (including the taxable portion of the  529 distribution), he may be subject to the "Kiddie Tax" (<a rel="nofollow" target="_blank" href="https://www.investopedia.com/terms/k/kiddietax.asp">https://www.investopedia.com/terms/k/kiddietax.a...>)

[Hal_Al · Accepted solution]

If the distribution, from the qualified tuition plan, was totally spent on qualified educational expenses, you do not need to report the 1099-Q as income. So, just don't enter the 1099-Q into TurboTax. When TT determines that none of it is taxable, there is no entry made anywhere on the IRS tax forms. The only paper work is a 1099-Q worksheet that is not sent to the IRS, but might come in handy if you are audited

 However, if you claimed a tuition credit, you may not count the same expenses that you counted for the credit, against the 1099-Q. 

TurboTax (TT) uses part of your tuition expenses to claim a tuition credit. Since you are not allowed to double dip and claim a 529 plan tax exclusion for the same expenses. some of the distribution is taxable.

Here,s an example:

  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship

   -$4000  used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360) 

[hobbit114]

"If the distribution, from the qualified tuition plan, was totally spent on qualified educational expenses, you do not need to report the 1099-Q as income."
What if the 529 distribution was requested 12/30/18 - payable and sent directly to University - but was not posted to the student's account until 1/4/19?  My tax accountant says a portion of the distribution IS taxable because the actual withdrawal and payment were in 2 different calendar years.  This seems crazy!  The money went straight to the school to pay spring semester tuition that was due 1/2/19.

[Hal_Al]

Your accountant is correct, that's the rules.
I assume you got a 2018 1099-Q for that  12/30/18 withdrawal. You are allowed to claim payments made in 2018, for the first term of 2019.
Even though the school didn't apply the money until 2019, you should  be able to argue, if audited,  that you constructively paid it in 2018, when the money was "mailed" to the school. I would claim it.
Do a better job on planning and timing next year.

[hobbit114]

Thanks!  The instructions for Form 8863 include info about Prepaid Expenses.  "Qualified education expenses paid in 2018 for an academic period that begins in the first 3 months of 2019 can be used in figuring an education credit for 2018 only."  I didn't foresee there being an issue of the processing time between when I asked for the money to be sent to the school and when the school actually posted the payment.  Lesson learned!!

[wrrinak]

I posted the original question on filing a 1099-Q last year.  IRS instructions say to include a copy of the 1099-Q and the 1098-T with your child's tax return even though the parent takes the credit.  It is an FYI for the IRS to confirm the child did not have money taken out of a 529 plan account which was used for non-qualified expenses, (ie.- The parent or child used 529 account money for something other than qualified education costs).

The Turbo Tax program has a glitch and you should check for it if you are filing your child's return separately from yours.  It does not complete the tax credit, (which is also the calculation of non-qualified withdrawal), IRS form correctly.  It does not list money used for qualified expenses in the correct boxes of the IRS worksheet and therefore assigns a tax to any money taken out of the 529 regardless of how it was used.  I caught it two years ago and contacted Turbo Tax.  They did not fix it on the 2018 version of their program.

I am not talking about using money withdrawn from a 529 plan or received as a scholarship in one year but used for education expenses the following year.  That is not what happened in my situation.  The problem is with the Turbo Tax program and they have not yet fixed it,