1099-Q

[MarkWiz72]

I received a 1099-Q for college expenses. Am I supposed to enter in both the 529(A) and 529(C) figures in TurboTax?

[Cynthiad66]

@MarkWiz72 - No.  Enter the form 1099-Q based on the plan you have  Determine where to enter by reviewing your 529 plan.

What is the difference between 529 and 529A?

What is a 529A plan? Similar to a 529 college savings plan, a 529A plan allows you to save for a specific purpose. Instead of strictly using the money for education-related expenses — as would be required with a 529 college savings plan — you can use the money for disability-related expenses

What is a 529 C?

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code

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:

Use this link for more information:  Information on 529 plan

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.

Use this link for additional information:  Qualified Tuition Plans - IRS

[MarkWiz72]

ok thank you. I noticed my return plummeted after entering my 1099-Q. am I being taxed that much on my distribution even though it was used for a qualified education expense?

[ThomasM125]

QMarkWiz72 You shouldn't be taxed if you used your education plan distributions to pay for qualifying education expenses, which include room and board necessary for you to attend school.

If your qualifying education expense are more that your distribution, then you don't need to report the form 1099-Q on your tax return. However, you need to keep in mind that the education expenses you use to exempt your distribution from taxation cannot also be used for you or anyone else to qualify for an education credit.

To have TurboTax calculate your allowed deductions, you would need to enter your form 1098-T in the Education section, in Deductions and Credits, an then Expenses and Scholarships (Form 1098-T). However, if you are a dependent of someone and they received an education credit for you, you would have to exclude expenses they used to qualify for the credit. Please keep in mind that room and board are not allowed for the education credit, so you can use all of those expenses to exempt your education plan distributions.

[MarkWiz72]

So I am the student's (my daughter) father; does what you said below still hold true? I am the recipient of the 529, but the distribution goes for her education. So you're saying on my returns, I needn't report the 1099-Q, thereby not paying taxes on the distribution? I wouldn't say the qualifying expense was more than the distribution; we just pulled out what was needed.

[KrisD15]

Short answer, YES

If you used a 529 saving plan to pay education expenses, and the distribution is equal to expenses, you needn't enter the 1099-Q nor the 1098-T. 

Remember that a distribution can be used tax-free to pay for Room and Board as well as Tuition, books, supplies, and fees.

Tuition, books, supplies, and fees can be used towards an education credit. 

The person claiming the student can allocate part of a distribution as taxable income for the student if it frees up expenses for a credit. The credit is often worth more than the tax on the distribution or scholarship. 

OR if the distribution can be allocated to room and board, that would be tax-free and might free-up expenses to use for a credit. 

There are many options available, but you can always just pass-up trying to get the credit and leave off the forms if there is no Tax liability involved. 

IRS PUB 970

[MarkWiz72]

so entering a 1099-Q and 1098-T is just to try and get the credit? what does "if there is no Tax liability involved" if I leave off the forms mean?

[ThomasM125]

You may be able to report the 1099-Q and 1098-T on your tax return to see if you qualify for an education credit.

If the form 1099-Q is in your name you can report it on your tax return, along with the form 1098-T. If the education expenses are more than the scholarship income, you may be entitled to an education credit that can reduce your income tax liability. You can report the 1098-T on your tax return even if it is the name of your daughter, provided you claim her as a dependent on your tax return.

If you use the education plan distributions for qualifying education expenses, then there will be no tax liability involved, in other words, you won't owe taxes on your distribution.

[MarkWiz72]

My confusion lies in how TurboTax calculates education credit vs. taxable distribution: I entered the 1098-T on behalf of my daughter, a student who I'm claiming as a dependent, and I qualified for a tax credit based on the information on that form. When I went to enter in the information on the 1099-Q, all of which should have been a qualified distribution and thereby tax-free, I watched my refund amount plummet. If I can't get both a credit and no taxes taken from my distribution, does Turbo Tax know to give me the greater of the two? Have a done this return correctly by entering both my 1098-T and 1099-Q? Should I have entered them both or one or the other?

[KrisD15]

"If there is no tax liability" means this-

If the assistance, such as scholarships, exceeds the expenses, such as tuition, the student may need to claim income for that excess scholarship amount which would create a tax liability. 

If a distribution was taken from a 529 Account and not used for education purposes, the earnings portion of that distribution may be taxable income for the Taxpayer whom was issued the 1099-Q, be that Owner or Beneficiary. 

If a Taxpayer has a 529 savings account, education expenses, and understands how the distributions, expenses, and other aid -such as scholarships- are allocated, (and the allocation does not require any income to be claimed) that Taxpayer does not need to enter the forms on their tax return. 

SOME expenses work differently with different aid. 

Scholarships used to pay Room and Board are taxable to the student.  

Distributions used to pay Room and Board are NOT taxable to anyone.

Expenses used for an education credit include Tuition, Fees, Books and Supplies. 

Payments may be allocated most anyway that is most advantageous for the taxpayer. 

"If I can't get both a credit and no taxes taken from my distribution, does Turbo Tax know to give me the greater of the two? "

SORT OF.

YOUR TurboTax program does not know the student's tax situation, so YOUR TurboTax program will pick what's best for you with the assumption that any tax the student may need to claim will be less than the benefit of the credit, and that is usually the case. 

"Have a done this return correctly by entering both my 1098-T and 1099-Q?"

YES

Your TurboTax program needs all the data so that it can do the math. Your program will tell you what the student needs to claim if anything. 

Complete the Education Interview Step-by-Step. 

Enter the 1099-Q and then the 1098-T and all other expenses. 

Be sure to enter Room and Board since that can be allocated to the distribution.

When you click on "Maximize My Education Tax Break" the program should do its magic, but it can be temperamental. The program has been known to allocate 10,000 for the credit. If you are eligible and select the American Opportunity Tax Credit, that credit maxes out with 4,000 expenses, so using any more than that is silly. The Lifetime Learning Credit maxes out with 10,000 but is usually not as valuable.

Run through the Education interview several times so that the program can adjust if necessary. 

Check the 1099-Q worksheet if using TurboTax Desktop. Look at Form 8863, which would be part of your tax file, to see what is being allocated to the credit. 

Search   letme   to see your options and change the choice of credit. 

[MarkWiz72]

Here's another wrinkle: the 1099-Q form is showing distribution for (2) semesters, since one was withdrawn for the fall 2021 semester and the 2nd was drawn in December 2021 for the spring 2022 semester. The 1098-T is only showing tuition for Fall 2021 - do I need to get an adjusted 1098-T? Also, where in TurboTax do I add room and board, since that amount isn't provided on the 1098-T?

[ThomasM125]

You don't need to get an adjusted 1098-T form. When you enter the 1098-T form in TurboTax, under the box 1 entry you will see What if this is not what was paid to this school highlighted, press on that to enter that actual expenses.

Later on in that same section you will see a screen that says Did (student's name) Pay for Room and Board with a Scholarship or Grant? If you answer "yes" you can enter the room and board expenses.

@MarkWiz72

[MarkWiz72]

My financial advisor told me I needed an offset notation to self-verify it was used for education expenses. Is there a way to do an offsetting entry, or is it even necessary?

[ThomasM125]

If the distribution is not taxable, then it won't show on your tax return, so an offset notation would be unnecessary. Maybe you adviser could be more specific, such as explaining where the offset would be entered. 

[MarkWiz72]

I entered all of the distribution amounts from my 1099-Q, which covered the Fall 2021 semester and the Spring 2022 semester (which was billed in December 2021) of qualified expenses. Can I enter the tuition and room and board amounts for the Spring 2022 semester on my 2021 returns, even though the actual payment was made to the school on January 4, 2022 (I read somewhere that tuition payments for the first 3 months of the year can be entered in the previous tax year's returns. Is that correct?