New Jersey taxes earnings on Coverdell distributions. I entered my distribution into TT federal, but TT does not add these earning to my NJ return. How do I fix this?

[ReneeM7122]

The Cloverdell distribution is reported on Form 1099-Q.  The federal side of TurboTax won't report the distribution as a taxable amount if it doesn’t exceed the amount of the student's qualifying expenses, but to make sure that New Jersey carries this information, you'll need to work directly in the state return.

On the State tab, search for 1099-Q and input the information.

Here is a TurboTax article that explains form 1099-Q

[kheshgi4]

Thanks for the reply. I am using TurboTax online and am not able to get the 1099q information into the New Jersey state form. Can this be done with TurboTax online?

[Cynthiad66]

Yes, it can.   It must be entered on the federal return.  All relevant information that is entered on the Federal return is automatically carried to the State.  Here is how to enter on the Federal.

Form 1099-Q reports distributions and benefits from Coverdell education savings accounts and 529 plans. It's reported on the tax return of the person whose Social Security number is on the form.

Here's how to enter your 1099-Q in TurboTax:

1. Open or continue your return.
2. Select Federal and then Deductions & Credits.
3. Scroll down to the Education section under All tax breaks.
4. Select, Show more and select Start or Revisit next to ESA and 529 qualified tuition programs (Form 1099-Q).
5. Follow the screens to enter your info.

[mbinnj]

Turbo tax NJ state section is showing our 1099-Q (Payment from Qualified Education Programs) in NJ form NJIW1701.SCR 04/30/15.  the full amount is identified as "Taxable Interest Income", along with 1099-INT (bank interest).

The received 1099-Q does not show a breakout of the specific earnings, the full amount withdrawn is identified as Gross Distributions".

We can go through our historical contributions, but this is nowhere close to the actual earnings.

I don't feel this is really "taxable interest / earnings", is this a Turbo tax error, or NJ issue?

[KrisD15]

The 1099-Q should report Distribution Box 1) as well as the earnings (Box 2) and your basis (Box3).

If the 1099-Q is only reporting the account balance, you can compute the tax using the instructions below. 

TurboTax does not do this calculation as most Form 1099-Q report Box 1, 2 and 3. 

You might also want to contact the account administrator to get those figures.

"The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. Figure the taxable portion for 2021 as shown in the following steps. 1. Multiply the total amount distributed by a fraction. The numerator (top part) is the basis (contributions not previously distributed) at the end of 2020, plus total contributions for 2021, and the denominator (bottom part) is the value (balance) of the account at the end of 2021 plus the amount distributed during 2021. 2. Subtract the amount figured in (1) from the total amount distributed during 2021. The result is the amount of earnings included in the distribution(s). 3. Multiply the amount of earnings figured in (2) by a fraction. The numerator (top part) is the adjusted qualified education expenses paid during 2021, and the denominator (bottom part) is the total amount distributed during 2021. 4. Subtract the amount figured in (3) from the amount figured in (2). The result is the amount the beneficiary must include in income."

IRS PUB 970

@mbinnj