topic Re: 529 calculations in Education

529 calculations

dulang — Thu, 26 Mar 2026 00:43:23 GMT

Dear Turbotax,

For the last 3 years I have based on your guidance handled the 529 that I administer in the following manner when doing taxes for my grandson who is the beneficiary. There are no AOTC credits involved.

Qualified 529 withdrawals less allowed room & board less books = 529 money that can be applied to tuition.

Tuition less remaining 529 money = tuition that scholarship money can be applied to. If tuition remains, there are no taxes. If scholarship money remains, it is taxed as excess scholarship (other Income, 1040 line 😎 . The tuition amount paid by the 529 is included as an Other Scholarship entry. 1099-Q not entered based onTurbo Tax guidance.

Now that the product has been changed for 2025, I can no longer tell whether or not this approach holds water, what I should enter or where I should enter it. This is a TRIVIAL return (1 interest entry, 1 dividend entry) with the exception of the 529 QTP which should not be complicated. WHAT SAY YOU TURBOTAX?

Re: 529 calculations

Hal_Al — Thu, 26 Mar 2026 01:44:06 GMT

Q. If scholarship money remains, it is taxed as excess scholarship (other Income, 1040 line ??)

A. Yes. Beginning with tax year 2022, line 8r of Schedule 1 (previously it went on line 1 of form 1040 with a notation SCH).

Q. The tuition amount paid by the 529 is included as an Other Scholarship entry.

A. No, not usually. It depends on how you are doing it, which isn't clear.

Q. 1099-Q not entered based on TurboTax guidance.

A. Yes, since you have determined that none of the 1099-Q is taxable.

Q. There are no AOTC credits involved.

A. Why not. Even though the grandparent is the owner of the 529 and the student is the beneficiary, the parents may still claim the AOTC (unless their income is too high) if the student is their dependent. See separate detailed post below.

Q. what I should enter or where I should enter it?

A. Manually calculate the taxable amount of scholarship and enter the 1098-T, on the students return, with 0 on box 1 and the taxable amount in box 5.

For more detailed advice, provide some numbers.

Re: 529 calculations

Hal_Al — Thu, 26 Mar 2026 01:43:14 GMT

Qualified Tuition Plans (QTP 529 Plans) Distributions

General Discussion

It’s complicated.

For 529 plans, there is an “owner” (usually the parent, but the grandparent in this, and many other cases), and a “beneficiary” (usually the student dependent, but a non dependent in this case). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q distribution gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the grand parent or student's return, the 1098-T should go on the parent's return, so they can claim the education credit. They can do this because he is their dependent.

They can and should claim the tuition credit before you claim the 529 plan earnings exclusion (unless their income is too high). The American Opportunity Credit (AOC or AOTC) is 100% of the first $2000 of tuition and 25% of the next $2000 ($2500 maximum credit). The educational expenses she claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit. Room and board (R&B) are also qualified expenses for the 529 distribution, but not the AOC (R&B are also not qualified expenses for a scholarship to be tax free).
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him/her an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit regardless of whose money was used to pay the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount they can use to claim the earnings exclusion on the 1099-Q.
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 (on the recipient’s return)

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

There is $1120 of taxable income (on the recipient’s return)

**Alternatively; you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip! When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

***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. Most people come out better having the scholarship taxable before the 529 earnings. A student, with no other income, can have up to $15,750 of taxable scholarship (in 2025) and still pay no income tax.

Re: 529 calculations

dulang — Thu, 26 Mar 2026 02:32:10 GMT

Thanks.

No Aotc due to parent income. Here is what I've calculated. I have no idea how to enter it.

+44575.00 Actual 529 qualified expenses

-19896.00 Room & Board

- 209.00 Books, etc.

------------------------------------------------

+24470.00 Remaining 529 money to use on tuition

------------------------------------------------

+46387.00 Tuition plus adjustment from 1098-T

-24470.00 Remaining 529 money to use on tuition

--------------------------------------------------

+21917.00 Tuition remaining

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+23783.00 Scholarships plus adjustment from 1098-T

-21917.00 Tuition remaining

---------------------------------------------------

=1876.00 Excess Scholarship Income

Re: 529 calculations

Hal_Al — Thu, 26 Mar 2026 03:18:14 GMT

I assume "$44575 actual 529 qualified expenses" means that $44,575 was the amount in box 1 of the 1099-Q.

Q. How do I enter this in TT?

A. Enter the 1098-T, on the students return, with box 0 in box 1 and 1876 in box 5.* TT automatically treats the difference between box 5 and box 1 as taxable scholarship. Verify by checking that $1876 shows up on line 8r of Schedule 1.

If his interest and dividend income is less than $451, he is not required to file a tax return.

Someone who can be claimed as a dependent must file a tax return for 2025 if he had any of the following:

Total income (wages, salaries, taxable scholarship etc.) of more than 15,750 (2025).
Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1350.
Unearned income over $450 and gross income of more than $1350.
Household employee income (e.g. baby sitting, lawn mowing) over $2600 ($17,750 if under age 18)
Other self employment income over $432, including money on a form 1099-NEC

*The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income.

If you claim the tuition credit, you do need to report that you got one.

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.