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bryantmcc
New Member

Turbotax counting 529 withdrawals as income

 
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Hal_Al
Level 15

Turbotax counting 529 withdrawals as income

TurboTax (TT) uses part of your tuition expenses to claim a tuition credit. Since you are not allowed to double dip and claim a 529 plan tax exclusion for the same expenses. some of the distribution is taxable.

For a full explanation see this link below; which includes an example. 

https://ttlc.intuit.com/questions/2662573-where-do-i-enter-1099-q?jump_to=answer_4402991

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6 Replies
Carl
Level 15

Turbotax counting 529 withdrawals as income

That's because they are income *initially*, and taxable income *initially* at that. The taxability of those funds is offset by the qualified education expenses they are used to pay for. Those qualified expenses have to be paid in the same tax year the funds are received too.
bryantmcc
New Member

Turbotax counting 529 withdrawals as income

I post qualified expenses but TurboTax does not offset them so it posts income.
bryantmcc
New Member

Turbotax counting 529 withdrawals as income

Does nor offset on the child's return (not the parent).
Hal_Al
Level 15

Turbotax counting 529 withdrawals as income

TurboTax (TT) uses part of your tuition expenses to claim a tuition credit. Since you are not allowed to double dip and claim a 529 plan tax exclusion for the same expenses. some of the distribution is taxable.

For a full explanation see this link below; which includes an example. 

https://ttlc.intuit.com/questions/2662573-where-do-i-enter-1099-q?jump_to=answer_4402991

Carl
Level 15

Turbotax counting 529 withdrawals as income

that's because most likely, you didn't work it through the education section the way the program is designed and intended to be use. Pay attention to the bold italicized text.

                • 1099-Q Funds

 First, scholarships& grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Next, 520/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred to line 21 of the 1040 with an annotation of "SCH" next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over that are taxable, then while the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

bigdad930
Returning Member

Turbotax counting 529 withdrawals as income

Is there any education section in TT to input university tuition, room & board expense so TT will know how much much 529 distribution (1099Q box 1 #) to offset theses expenses to calculate any taxable amount?

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