Student info worksheet part vi line 17- why a $10k "used for credit or deduction" reduction?

[AmyC]

@toddm017  It is very important to enter the 1098-T and all of those expenses before entering the 1099-Q. If all of the 1099-Q was used for qualified expenses, you do not need to enter it. Instead, just reduce qualified education expenses by the portion attributable to tuition after room and board.

Please see my 529 example with IRS information here. 

[Craig_S]

Thanks for providing the answer that doesn't require a manual change to the forms.  

[DBK1]

I am working on my 2021 return and this glitch looks like it still exists  - somehow it is reducing my qualified 529 expenses by $10k (applying $10k populated in 'used for credit' (line 17 on the student information worksheet).  How could this issue still exist after 2 years of reporting a problem and Turbo Tax acknowledging a glitch ? 

[MarilynG1]

If all of the 529 distribution was used for 'qualified education expenses' (including room and board), you don't need to enter the 1099-Q in your return.

For most qualified education program beneficiaries, the amounts reported on the 1099-Q aren’t reported on a tax return.

Click this link for more info on the 1099-Q. 

[skil]

I've posted before on this and the 2022 version is still doing it.  I followed the advice and entered the 1098T first and NO dice.   Still had to fix manually.   Gotta say - this is extremely poor.  Intuit needs to come up with a better way to prevent this same error from happening again and again year after year.  Embarrassing.

[DBK1]

Thanks so much.  Indeed a fix is frankly needed.  And to be honest, I really discovered it be accident - otherwise, I wouldn't have caught it.  I called Turbo Tax to find out when they will be fixing it.  After being left on hold for an hour, I finally hung up (and just did the manual override).  Bad ! 

[DBK1]

As a follow up.  Having to manually override the forms (to adjust for Turbo Tax's bug) is also resulting in issues with the final review of the return - Turbo Tax wants me to remove the manual overrides as they could cause a problem with efiling.  Obviously, I can't remove the manual overrides so a bit concerned that this will ultimately get screwed up when filing.  Any thoughts ?  thanks all. 

[KrisD15]

It sounds like the TurboTax program is taxing 529 distributions so that the expenses can be used for a credit. 

If you entered education information, and click "Maximize My Tax Break" the program will decide on the best allocation of distributions and expenses. 

The tax on the distribution must be less than the credit. 

The program will default at 10,000 for the Lifetime Learning Credit.  

The American Opportunity Tax Credit maxes out with 4,000 expenses, so using any more than 4,000 for the AOTC is silly. 

Additionally, you may want to save the credit for another year. 

If you go back through the education interview, you will have the option of changing the amount you want to use for a credit. This does not require a manual over-ride. 

You may also type    letme     into the search-box and click the "Jump to letme  link and change the credit. 

If you used the distribution for education expenses, and you don't wish to allocate anything, then don't enter the 1099-Q and enter the 1098-T with that amount less in Box 1. 

The Forms are not entered on your 1040, they are used to compute tax or credits attributed to education expenses and financial instruments used to pay those expenses. 

[DBK1]

Thanks.  The problem is that Turbo Tax is reducing 529 plan distributions by $10k (per child) resulting in taxable income on the distribution and a penalty.  There was no way to remove the $10k credit that Turbotax was populating (a known bug). So to avoid a tax (while still entering all 529 plan expenses into turbo tax), I had to increase the expenses by $10k.  I understand none of it gets submitted with the electronic return but nevertheless, you should be able to enter the correct amount - if nothing else but for records.   Hope they fix this.   Thanks

[carriskoul]

I had the same problem with my 2021 file as many of you did in the prior years.  TT was adding a $10k credit in Part VI - Education Expenses (Line 17) under the Student Information Worksheet for no apparent reason.  This was odd as the 2020 version did not have this glitch.

The way I worked around it in this year's 2021 TT was I double-clicked on the field where it was adding the $10,000 (font of automated entry was in blue).  A window will pop open where you can add a description and the amount to manually change the field entry.  Here I entered "Glitch with TT" and $0.  This then updated the form (font of manual entry changes to purple).  Very frustrating indeed.

[MarilynG1]

The 10K 'claimed for credit or deduction' is for qualifying for the American Opportunity Credit.

per Expert @DavidS127:

"Note that when you have a 1099-Q (529 plan) distribution and someone on your tax return is also eligible for other education credits (such as the American Opportunity Credit or AOTC) there is a screen in TurboTax where you are asked to "allocate" education expenses to those credits versus the 529 plan distribution. 

Generally, it is best to allocate enough (but only enough) to these credits first, with the remaining education expenses applied against the 529 plan distribution.

That allocation between education credits and 529 plan distributions can also be done in the Forms mode of your Download/CD version. Go to Forms mode and find the applicable "Student Info Wk". 

Scroll down to Part VI and find line 17.  If you enter $4,000 on line 17, TurboTax will first use $4,000 of your qualified expenses for the education credits/deductions (e.g., AOTC) and then use the rest of the expenses you entered to apply against the 1099-Q (529 plan) distribution.  If you enter zero, all the expenses will be allocated to the 529 plan distribution."

Click this link for more discussion on Allocating Education Expenses. 

[carriskoul]

Hi - thanks for that tip.

I'm not so sure that TT walked me through that portion of the interview to determine if my daughter was even eligible for the AOTC.  Last year by doing the exact same entries in the interview I didn't have this issue.

Then Line 17 was auto-populated to $0.  But this year's version auto-populated $10,000 when I didn't even get asked to allocate.  Perhaps I missed a question or entry somewhere along the way?

All I saw was that it reduced the eligible tuition expense total I entered by $10,000 and resulted in an overage of 529/scholarship money of which it then figured out tax owed.

The return was for my student daughter who is filing her own return and really had no income.  Just eligible tuition expenses of which I'd rather have it all allocated towards her 529 distribution/scholarship to avoid paying tax on any money left over.

[kkacp]

I am very confused by all of this Line 17 and Line 18 on the Student worksheet.  We only had $2023 that was not covered by scholarships.   We had $1090 from a 529 plan.  I used the form mode and it put all the $2023 on line 17 and I was to get a larger refund.   I then went through the step by step  and it put all the 2023 into line 18 and my refund was about put in half.  We had to do this quite a few years ago with our oldest but I don't remember anything like this before.   Can someone guide me on what I should do?

Thank you! 

[KrisD15]

To clarify

Did you enter a 1099-Q and 1098-T in step-by-step?

Did you go through the education interview completely and select "Maximize my tax break"?

@kkacp

[kkacp]

Yes, I used the 1099 Q and the 1098 in the step by step.

I believe I did go thought the educations interview.