1098-T and 1099-Q back to This

[BudgetNuts]

Hi all, thank goodness its the last year for this education question. This year, I cannot claim my child as a dependent. However, when helping with his taxes I have the same old question regarding how Turbotax causes earnings from a 529 plan to be taxable when entered with the 1098-T and 1099-Q. His gross distribution Line 1 on 1099-Q was less than his actual education expenses. Yet the earnings show up as taxable. What is the best way to enter into turbo tax or is it required to be reported at all? Turbotax wants to apply and give him the lifetime learning credit is that the issue? Since he issued all the distribution for education expenses nothing seems like it should be taxable. 

I am grateful this is the last year for this specific question as it seems to come up every year.  Any assistance is appreciated. 

[KrisD15]

If the credit is not a priority and the distribution ( and other assistance such as scholarships) is not more than the education expenses (Room and Board can go towards the distribution only) then don't enter those forms (1099-Q and 1098-T)  or 

type

letme

Click on    "Jump to letme"

Adjust the income used towards the credit. 

[BudgetNuts]

The payments made directly to the school by the 529 plan (showing on the 1098-T) were more than what is on #1 of the 1099-Q. So he had about $200 more in education expenses than what we withdrew. yet on the 1099-Q the earnings portion which is several thousand dollars shows up on his return as other earned income?  

So should he report the education expenses? and enter the 1099-Q? I'm kinda confused at this point between qualifying for the education credit or not. Not sure which way to go so he doesn't inadvertently pay taxes when he shouldn't. 

[KrisD15]

So I hear you say that Box 1 on the 1098-T is 200 more than Box 1 on the 1099-Q. 

So tuition expenses were 200 more than the distribution. 

What about books, supplies and Room and Board? 

Yes, the Lifetime Learning Credit is the issue. That is a non-refundable credit (it lowers tax liability but is not refundable as an additional refund) 

That credit amount would be listed on Schedule 3 line 3. Is the credit worth more than the tax on the distribution? 

(for TurboTax Online to view the 1040, 

click TAX TOOLS on the left side-bar

click TOOLS from the drop-down

click "View Tax Summary" on the TOOLS CENTER screen

Review on screen or select "Preview my 1040" which now appears on the left side-bar)

[BudgetNuts]

No I would rather not have the tax. Do I just skip adding the 1099Q and 1098-T information since the tuition and expenses were more than the disbursement from the 529 plan?

What would be the options since we are only talking about $200 more expenses than what was taken out of the 529 plan......?

He gets less of a refund if he takes the credit and adds the 1099-Q and 1098-T......at his age he needs all the return he is due. Thanks

[ShirlynW]

No. You don't have to enter Forms 1099-Q and 1098-T, since your son does not want to claim the Lifetime Learning Credit. Forms 1099-Q and 1098T are informational forms. I would keep both forms just in case the IRS ask. To delete Forms 1099-Q and 1098-T, follow these steps:

1. Open TurboTax.
2. In the panel on the left side, select Tax Tools > Tools.
3. Delete a form.
4. Delete Form 1099-Q.
5. Delete Form 1098-T.
6. Sign out of TurboTax.
7. Open TurboTax > Continue.

[edited 03/12/2023 9:04 PST]

[BudgetNuts]

Thanks for the reply. You got me with the "No" in your reply. Do you mean "yes" to just not reporting it since the withdrawal was less than the education expenses paid directly to the school? I get that the 1099-Q and 1098-T are informational. Does he report any education expenses in that scenario or just answer No to education on turbotax?

[Critter-3 · Accepted solution]

Do NOT enter either the 1098-T or the 1099-Q in the program and do NOT try to take the education credit. 

[BudgetNuts]

Thank you so much.