1098T and 1099Q clarification needed ...ty

Form 1099Q only needs to be entered if you have a taxable distribution to report.  

Form 1098T only needs to be entered if you either have a taxable scholarship to report (which would go on her return) or if you are claiming a tax credit.   You cannot "double-dip" and claim the credit for tuition paid for by the 529 plan funds.  However, if you had more expenses than the distributions covered, you can take a credit for those. 

You see the big jump in your refund when you enter the 1098 T because you are seeing the full value of the AOTC credit as if you had no "help" from the 529 plan to cover expenses.  Then you see a drop when you enter the 1099Q as it adjusts for the combination of the two.  The Pennsylvania number is likely not yet accurate as you haven't started working on that part of the return yet.  

If you had out-of-pocket expenses, not covered by your 529 plan withdrawal, that are equal to or greater than the net amount listed on your daughter's Form 1098T (the difference between Box 5 and Box 1), then you should leave the Form 1098 T in TurboTax, and delete the Form 1099Q.  If all of her expenses were covered by the withdrawal, remove them both. 

Apply the same logic when determining if you should amend the prior year returns.  

@ SusanY1

Thanks for your information/reply.

I will remove both the 1099C and 1098T as the 529 was used for qualified expenses in 2019 as well as 2018.

However, in 2017 I took money out of savings for her tuition and didn't use any 529 funds. Do you suggest I amend 207 to take the AOTC credit ?  

You certainly could do that and most likely would qualify for a credit. 

Remember that the American Opportunity Tax Credit may be claimed ONLY 4 TIMES PER STUDENT. 

CLICK HERE for IRS Pub 970

@KrisD15  @SusanY1 

In looking closer @ 2019, 1098T net was $1681 greater than the 529 distribution. Would I leave the 1098T in there for the full amount of $14154 or change to the difference of $1681 ? Then delete the 1099Q from TT ? 

Thanks for the help 

The program will want you to enter both forms, but you won't be able to file since there seems to be an update for the 1099-Q. 

You can delete the 1099-Q, but enter the 1098-T as it is reported. THEN enter 12,473 as ADDITIONAL tax-free assistance on the screen after the 1098-T entry screen.  

Be aware that you might be able to get  a larger credit by entering the 1099-Q and claiming some of the distribution as taxable if it frees up more expenses for a credit. BUT if you just want to claim the difference, without entering the 1099-Q, this is the way I would do it. 

@KrisD15  There was no where to "THEN enter 12,473 as ADDITIONAL tax-free assistance on the screen after the 1098-T entry screen. "  It takes me to the Education Expenses summary page and the the continue button takes me to: 

Thanks for the help. 

BEFORE ANYTHING, MAKE SURE YOU ARE NOT THE BENEFICIARY of the account. I think you might be the owner, but not the beneficiary. The beneficiary must be the student or you'll be taxed and pay a penalty on the distribution.

Make sure the beneficiary is the student, not you, her dad. You might be the owner of the account, and you may have been issued the 1099-Q, but the beneficiary should be your daughter. If you are entering the 1099-Q and saying you are the beneficiary, you'll be taxed. 

You can only use this work-around if the beneficiary is your daughter, the student. 

I suggest you simply correct the entry of the 1099-Q if you selected yourself as the beneficiary, and you're not. That might be all you need to do. 

If that doesn't take care of it and you just want to subtract the distributions from the tuition (AND your daughter IS the beneficiary), delete the 1099-Q, the 1098-T and re-enter the 1098-T. The screen after entering the 1098-T asks for additional tax free assistance. Enter the amount of the distribution here.   

I understand, it is so hard to get back to the 1098-T screen. I suggest you delete the education info, (you have to go through all the interview questions, then delete the student) or delete the 1098-T and start over. Before you start over, make sure there is nothing showing in the education section under "Deductions & Credits. Delete form 1099-Q first if you have already entered that. 

To delete the 1099-Q and 1098-T follow these steps: 

Sign into your account and go into the return

Open the “Tax Tools” drop-down on the left side bar

Click on “Tools” on that drop-down

Click Delete a form (the third one down) on the “Tools Center” screen

Scroll down and click “Delete” next to Form the form.

Enter it over again, after you enter the 1098-T, the next screen should ask about additional assistance. You can enter the amount of the distribution here, but don't enter the 1099-Q. Keep the copy with your tax file. Again, verify that the student is the beneficiary. 

@KrisD15  I am the beneficiary of the 529 and used the funds properly. 

The funds must be used for the student. 

The student must be the beneficiary. 

If you are the beneficiary, and you used it for a student other than yourself, it's all taxable. 

According to the IRS:

"A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. The document creating and governing the account must be in writing and must satisfy the following requirements. 1. The trustee or custodian must be a bank or an entity approved by the IRS.

2. The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. a. The contribution is in cash. b. The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. c. The contribution wouldn't result in total contributions for the year (not including rollover contributions) being more than $2,000.

3. Money in the account can't be invested in life insurance contracts.

4. Money in the account can't be combined with other property except in a common trust fund or common investment fund.

5. The balance in the account generally must be distributed within 30 days after the earlier of the following events. a. The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. b. The beneficiary's death. Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. The expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Designated beneficiary. This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account."

PLEASE CLICK HERE for IRS Pub 970

@KrisD15 

I spoke incorrectly.....I should have said I was the recipient and my daughter was the beneficiary. The 529 funds went to my account and I used them to pay her tuition etc.....the 529 distribution was $1681 less than her Tuition/etc reported on 1098T. How do I handle this ?  Thank you for the assistance

Hi skibriana,

529 accounts and distributions are not being handled correctly, and I see an IRS crackdown on these accounts soon, but that does not concern you at this point.

If the distributions were less than the student's tuition, you don't HAVE to do anything. 

ON THE OTHER HAND, you might want to apply for an education credit, in which case you do need to do something. 

To do something-

enter the student's (or your) 1099-Q, then the 1098-t (tuition and fees paid to the school).

Next add additional education expenses, like books and supplies.

Finally go through  the interview questions.

TurboTax does the math/

You might get a credit and/or the student might have to claim income.

Please read IRS Pub 970 for more clarification

IRS Pub 970

@KrisD15 

Thanks for your advice. The 529 distribution was $1681 less than her tuition. When I do the return on TT leaving out the 1099C and 1098T as you had suggested the federal comes back with a refund of $3212 and state tax due $7. The I enter the 1099C first as you had advised and refund is reduced to $1750 and state tax due of $390.

Then I go to see if we qualify for AOTC by entering the 1098T and it says we do and the federal refund goes to $5042 and $390 owed to the stayed the same. Thoughts ? Does this look correct ?  When I do the state portion the state drops back down to $7 owed and refund for federal stayed at $5042.

Then when I wrap up the federal portion it says:

Check this entry

Other Income Statement Qualified Tuition program distributions- taxpayer. You can't file just yet due to a recent law passed by Congress. this may mean a better tax outcome for taxpayers like you who have taxable QTP distributions. We can keep working on your tax return and we'll let you know when we can help you finish up your taxes . 

Confused. Thanks for the help. 

It does sound correct, 

an education credit reflects on the Federal return, and does not affect the state return,

then you made your adjustments on the state return, so your state tax liability changed.

The delay in e-filing is affecting everyone with a 1099-Q because Congress just made a change regarding 529 distributions and the software is being updated. TurboTax should e-mail you when it is completed. 

Thank you for your patience. 

Since there are no numbers here it is hard to figure what the correct amount is in this example.  However, I have run into a similar problem where I qualify for the AOTC and took a distribution from an ESA.  What should happen is the qualified education expenses should apply to the credit first and then the ESA distribution.  The example in chapter 7 on p54 of publication 970 under the subheading Coordination with American Opportunity and Lifetime Learning Credits illustrates this.  Here is my example:

Total Qualifying Education Expenses:            8829.46

Scholarships                                                       <3710.00>

Adjusted Qualifying Education Expenses:   5119.46

Expenses Applied to AOTC                            <4000.00>

Expenses Available for ESA Distribution      1119.46

ESA Distribution                                                 3343.00

ESA Distribution subject to Tax                        2223.54 ignoring the tax basis for simplicity

However, Turbotax is calculating it this way:

Total Qualifying Education Expenses:            8829.46

Scholarships                                                       <3710.00>

Adjusted Qualifying Education Expenses:   5119.46

ESA Distribution                                               < 3343.00>

Education Expenses available to AOTC      1776.46

Now perhaps I am missing an entry somewhere (and I have searched for this entry) that tells Turbotax how much of the ESA Distribution to use.   Can someone please help me?

You are missing room and board. The ESA is not taxed when used for room and board. You did not list those expenses above.

Your ESA is not to be taxed. You skipped the question about amount used for room and board. Go back and put a bigger number in there that makes sense.

@KrisD15 You stated:

Congress just made a change regarding 529 distributions and the software is being updated.

Is this per

taining to the Emergency Financial Aid Grants under the CARES Act, as shown on page 2 of IRS Pub 970 at https://www.irs.gov/pub/irs-pdf/p970.pdf ??? Or something that's not in the Pub yet?

If it's not in the pub, can you cite me the Statute or whatever please? I need to check my boilerplate and make sure it's complete, correct and current.

Meanwhile, there's so much "participation" in this particular thread, I'm staying out of it. 🙂 Please feel free to PM me, instead of adding to this already big thread.

My son commutes to school so there is no room and board.

@chamnessd 

For a 529 distribution, you may still claim "board", but not "room", even if the student lives at home.  You can keep track of actual  food costs  or just use the school's meal plan charge for on campus students, whichever is less. 

I am not sure how to do a private message.  Perhaps you can send me a private message and I will respond.  My question does not pertain to the Cares Act  I believe I sited Pub 970 in my original post.   Note Chapter 7, p. 54, subheading Coordination with American Opportunity and Lifetime Learning Credits.  

I honestly believe there is a bug in this section of TurboTax.