MD 529 State Contribution

[vzweiner]

I have a question about claiming my 529 contributions after receiving the MD State contribution.  According to the State of Maryland webpage, 

"If you receive a State contribution for any Account in a given year, you are not eligible in that year for the income deduction on your State taxes for contributions that you made to that or any other College Investment Plan Account."

This quote leads me to believe I should not be eligible to claim a deduction on my taxes.  However, when going through the process on Turbo Tax, there is not an option to skip the question about entering the amount of money I put into the 529 account to not claim the tax break since MD has contributed to the account.

Thank you for your assistance.

[JotikaT2]

You will need to enter this information in the state interview questions under "Education".

There is a section titled "Maryland College Investment Plan, State Contribution Subtraction".  You will adjust your Maryland contribution here for the amounts included on the Federal Income.

This entry will update your Maryland to not take the deduction as you also received the contribution.

[SKjames]

Where in the federal return would you declare/list said state contributions to MCIP so that they are included under your federal income? (I've looked for several years and never found such an option.)

[AnnetteB6]

Contributions to state 529 plans, such as the Maryland College Investment Plan, are not deductible on your Federal tax return.  Therefore, you do not enter those contributions anywhere except in your state return, where the contributions may be deductible.

This is applicable for all states with a 529 plan, not just Maryland.  

@SKjames

[Murt]

@AnnetteB6 There are two different types of contributions to Maryland 529 plan:

1) There are contributions that account holders can make.

2) If certain conditions are met, the state of Maryland also makes contributions to 529 plans.  The contribution amount from state of Maryland could be $250 or $500.

Please see here for more details: https://maryland529.com/Save4College/State-Contribution-Program/Contact-Us

Is the amount that the state of Maryland contributes to account holders' MD 529 plan (either the $250 or $500) considered income for federal tax purposes? If yes, where do we list it as income in the federal section?

Secondly, is that state contribution considered income for state tax purposes? I think the answer to this 2nd question is no, but just want to confirm.

Since this is a contribution from state of Maryland, a 1099-Q form is not provided, because a 1099-Q is for distributions.

Thank You

[AnnetteB6]

After taking a closer look at the link you provided as well as searching for further information, there does not seem to be anything that directly addresses whether the state's contribution to the 529 plan would be taxable income on your Federal return.  Unless you receive a tax document such as a Form 1099-MISC reporting the amount that was received, do not include it as income on your Federal return.

It also does not appear to be considered to be taxable income on your Maryland return.  However, if you do receive the state contribution amount, then you cannot claim the deduction on your Maryland return for your contributions to the 529 plan.

@Murt

@SKjames

Given the additional information shared by user Murt, I see I may have misunderstood your original question regarding the state contribution.  Hopefully, this answer will provide you with further insight.

[edited 3/19/2022 | 1:02 pm PST]