topic The https:/ttlc.intuit.com/questions/2854185 response doe... in Education

Who reports the 1099Q?

squeezil1 — Sat, 01 Jun 2019 03:19:24 GMT

My daughter is the recipient of a distribution from a 529 Plan owned by my father (her grandfather). The 1099-Q was sent to her and displays the last four of her SSN.

Who reports the distribution for tax purposes: my father (grandfather/owner of the 529), my daughter (the beneficiary, but who has nothing else to report on a tax return), or me (because she's already listed as my dependent) ? Thanks for your help.

Edited 02/10/2017 at 10:04 AM PT. The person who receives...

ToddL — Sat, 01 Jun 2019 03:19:26 GMT

Edited 02/10/2017 at 10:04 AM PT.

The person who receives the funds (whose SSN is on the 1099-Q ) has to report the Form 1099-Q on their tax return (If the money went straight to the school, it is treated as going to the student).

You can enter the Form 1099-Q in either the Wages & Income section or the Deductions & Credits section of Federal Taxes,

(If entering in Wages & Income, the Coverdell ESA and 529 qualified tuition plans interview is found under Less Common Income > Miscellaneous Income).

(If entering in Deductions and Credits, the ESA and 529 qualified tuitions interview is found under Education).

If the beneficiary is listed as a dependent on this tax return , you will have to complete the Education Expenses interview, including entering the Form 1098-T.

If the beneficiary is not listed as a dependent on this tax return (e.g. grandchild), you will have a screen to enter information about that student and their expenses. Unlike the Education Expenses interview, you can enter Room and Board costs (see attached screenshot).

Thank you. I have a few follow-up points & questions: 1...

squeezil1 — Sat, 01 Jun 2019 03:19:26 GMT

Thank you.  I have a few follow-up points & questions:

1)  She has never filed a tax return because she has no income
2)  The Earnings on the distribution from the 529 Plan were less than $22 (per the 1099-Q)
3)  In light of these two points, do I still need to create a new tax return for her in TurboTax so that she can complete the Education Expenses & Scholarships interview?
4) Alternatively, can she complete that interview in my tax return because she's still my dependent, the amount of Earnings is so small, and has nothing else to report?
5)  We've not received a Form 1098-T.  Should we be expecting one, and who would issue it (would it come from the University?)

Thanks again.

You should receive the 1098-T from the university sometim...

ToddL — Sat, 01 Jun 2019 03:19:28 GMT

You should receive the 1098-T from the university sometime in early February. If that is her only income, there is no need for her to file a tax return. - the threshold income for her to file a return is $1050.

Since a dependent is unable to claim their own exemption,...

ToddL — Sat, 01 Jun 2019 03:19:30 GMT

Since a dependent is unable to claim their own exemption, a tax return is necessary when their earned income is more than the standard deduction for a single taxpayer, which in 2016 is $6,300. However, the threshold decreases to more than $1,050 when the dependent's income is unearned, such as from dividends and interest.

Since she is not required to file a return and report the...

ToddL — Sat, 01 Jun 2019 03:19:32 GMT

Since she is not required to file a return and report the interest, you don't need to include the 1099-Q in your return. You should just complete the Education Expense interview with 1098-T on your return.

TutboTaxToddL, I want to make sure I understand your init...

Mochina — Sat, 01 Jun 2019 03:19:33 GMT

TutboTaxToddL, I want to make sure I understand your initial response to the question asked.  If 529 money went straight to my college son's school, my son must complete the Educational Expenses and Scholarships interview as part of his tax return.  For the 529 money that we as parents received to cover miscellaneous educational expenses on his behalf, we should complete the Educational Expenses and Scholarships interview on our joint tax return.  Correct?

If this understanding is correct, your answer makes sense, but appears to contradict a response found at https:/ttlc.intuit.com/questions/2854185.  That response included the following:
"Here’s the general rules gisted from IRS Publication 970
at <a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p970.pdf">http://www.irs.gov/pub/irs-pdf/p970.pdf</a>

If the student:

Is under the age of 24 on Dec 31 of the tax year and:

Is enrolled in an undergraduate program at an accredited
institution and:

Is enrolled as at least a half time student for one
academic semester that begins during the tax year, (each institution has their
own definition of a half time student) and:

the student's parents provide more that 50% of the
student's support (schollarships/grants received by the student do not count as
the student providing their own support)

Then:

The parents will claim the student as a dependent on the
parent's tax return and:

The parents will claim all schollarships, grants, tuition
payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that
qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent,
then:

The student must select the option for "I can be
claimed on someone else's return", on the student's tax return. The
student must select this option even if the parent's qualify to claim the
student as a dependent, and the parents do not claim them."

Would you please explain further?  Thanks!

Not sure what contradicts my guidance. Whoever the 1099-Q...

ToddL — Sat, 01 Jun 2019 03:19:34 GMT

Not sure what contradicts my guidance. Whoever the 1099-Q is issued to must report that 1099-Q on their tax return. If it goes to the child and the parents are claiming that child as a dependent, the child can still report the 1099-Q and offsetting educational expenses. The 1098-T is reported on the return where the child is claimed as dependent.

The https:/ttlc.intuit.com/questions/2854185 response doe...

Mochina — Sat, 01 Jun 2019 03:19:34 GMT

The https:/ttlc.intuit.com/questions/2854185 response doesn't seem to make a distinction based on whoever the 1099-Q is issued to. To quote again, "The parents will claim all schollarships, grants, tuition
payments, and the student's 1098-T on the parent's tax return..." It doesn't appear that the student has to deal with this at all when filing his/her tax return. However, you say that if the 529 payment for tuition, etc. went directly to the school, the student is considered the recipient.

TutboTaxToddL - as the original poster, I'd like to thank...

squeezil1 — Sat, 01 Jun 2019 03:19:36 GMT

TutboTaxToddL - as the original poster, I'd like to thank you for the info and wanted to confirm one final point: in our scenario, no one reports the 1099-Q on a tax return, correct? Neither my daughter, her grandfather (who owned the 529 account), nor me. Please let me know if that understanding is correct.

The 1099-Q must be reported on your daughter's tax return...

ToddL — Sat, 01 Jun 2019 03:19:38 GMT

The 1099-Q must be reported on your daughter's tax return since the 1099-Q was sent to her and displays the last four of her SSN. She can still file a return and note that she can and will be claimed as a dependent on another return (yours). If she doesn't have any income, her standard deduction will "wipe out" the 529 interest income, i.e. no tax. If she doesn't file and report the 1099-Q, the IRS may or may not send her a notice asking for a tax payment - this will depend on the amount of interest income on the 1099-Q, i

Thanks again. I created a TurboTax return for my daughte...

squeezil1 — Sat, 01 Jun 2019 03:19:40 GMT

Thanks again. I created a TurboTax return for my daughter and it shows she owes $2 in federal tax. I'd like to provide a few more details from our scenario to see if it affects your guidance:

My daughter is currently a senior in high school, and the $500 from the 529 plan was a deposit to confirm her planned enrollment in college this Fall. I believe using 529 funds for this purpose is a qualified expense and should not be taxable. Perhaps it was a mistake to send the money in the final days of 2016 (because she wasn't actually enrolled yet), but we were trying to meet the university's early January 2017 deadline to receive payment. In regard to the $2 tax (not a significant amount, but as a matter of primciple), does that information affect your guidance in any way?

I understand. Technically a deposit would not be a qualif...

ToddL — Sat, 01 Jun 2019 03:19:41 GMT

I understand. Technically a deposit would not be a qualified education expense, because it is not an "expense". It will be included in her 2017 Form 1098-T as an expense when tuition is billed/paid.

Irritating as it may be, she should file and pay the $2 tax.

ToddL — Sat, 01 Jun 2019 03:19:43 GMT

Irritating as it may be, she should file and pay the $2 tax.

(Have to say that)

ToddL — Sat, 01 Jun 2019 03:19:43 GMT

(Have to say that)

Re: Edited 02/10/2017 at 10:04 AM PT. The person who receives...

Yamalentt — Thu, 06 Feb 2020 02:40:57 GMT

Hello, ToddL,

Thank you for your post.

I am curious to understand what it means that the 1099-Q can be reported as income or as deduction.

First, does this include non-qualified distributions or only qualified? My withdrawal was non-qualified.

Second, what is the purpose or reason to list it as deduction vs. income? Might it lower my tax bracket?

Third, does entering it as deduction LOWER the income of the tax payer? I thought deductions were for EXPENSES rather than for income? I have $13,000 in earnings listed on my 1099Q and am considering itemizing my deductions by putting this 529 money as a large deduction.

Last, does the 10% penalty come off first and then the taxes are paid?

I appreciate any help you can provide as I am not a tax savvy person.

Eric

Re: Edited 02/10/2017 at 10:04 AM PT. The person who receives...

KrisD15 — Fri, 07 Feb 2020 23:18:02 GMT

It is not entered as a deduction or credit.

It is listed in the "Deductions & Credit" section because it should be matched to a 1098-T which is a form to claim a credit.

It would never be entered on a Schedule A.

Please click the link below for more information:

Where to enter a 1099-Q

Re: Edited 02/10/2017 at 10:04 AM PT. The person who receives...

shirlkoul — Tue, 10 Mar 2020 13:27:15 GMT

My problem is that I withdrew the money from the 529 as the grandmother and sent a check to my granddaughter to pay the tuition. Now I have a 1099 in my name. How do I report this.

Re: Edited 02/10/2017 at 10:04 AM PT. The person who receives...

SusanY1 — Tue, 10 Mar 2020 17:09:17 GMT

If the funds were used only for qualified education expenses, you actually do not need to report it at all. Form 1099-Q is only required to be listed on the tax return when a taxable distribution occurs. If the funds were used to pay tuition, and there was not an excess distribution, then you do not have to report the distribution.

The instructions on the form itself point this out, albeit in rather a tiny type, often on the back (sometimes on the bottom half of the form it reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return."

The rules for what makes it taxable or not can get a little complicated, but generally, if she didn't also have scholarships or take credits that also covered expenses with the same funds, the distribution isn't taxable.

@shirlkoul

Re: Edited 02/10/2017 at 10:04 AM PT. The person who receives...

Hal_Al — Tue, 10 Mar 2020 18:40:54 GMT

@shirlkoul In most cases, you can simply ignore the 1099-Q (don't report it at all). See KrisD15's reply for details.

But, you have to coordinate with the student and his/her parents. If they have used some of the tuition payments to claim a tuition credit, you may not use the same expenses to claim an exclusion of the 529 plan earnings.

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

-$3000 paid by tax free scholarship*

-$4000 used to claim the American Opportunity credit (on the parents return)

=$3000 Can be used against the 1099-Q ( on your return)

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)

*Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.