529 Withdrawal and American Opportunity Credit

[Stevenbirn]

In 2021 I withdrew  from the 529 and received a grant through the 529 from NJ Best for my son's college tuition and books.  Turbotax allocated $4000 from the education expenses for the American Opportunity Credit which resulted in some of the withdrawal being taxed.  I ran the different options in Turbotax and this was better than if the whole 529 was tax exempt.  Since I did this for federal do I have to allocate the same for the New Jersey return? For the New Jersey return I do not have to consider the AOC so would not have to declare any of the 529 earnings but it will differ from federal.  Do New Jersey state and federal have to be the same for the 529 withdrawal?

[JillS56]

Not necessarily.   The 529 Plan funds could be reported differently on the federal and the state.  The amount of the withdrawal would be the same, how the state handles the 529 Plan withdrawal can be different than how the federal handles the same funds.

Just go through the state return and answer the questions.  

[Stevenbirn]

Turbotax does not ask about the 529 for New Jersey, it just uses what federal uses.  The total tuition and books was $6161.46.  The scholarship was $1250 and the 529 withdrawal was $4800 ($1695.92 basis and $3104.08 earnings).  Turbotax calculated for federal the best return is $2515 as taxable income (other income on schedule 1) and $4000 towards AOC.  Turbotax applies the $2515 to the New Jersey return as interest.  If I apply the $2515 as taxable with federal do I have to apply the $2515 as taxable interest for New Jersey?  If not then New Jersey will not be taxed for the $2515.  Thank you for your assistance.

[Stevenbirn]

Thank you for your reply.  Turbotax does not ask anything about the 529 when filling out for New Jersey, it just automatically fills in the interest from the federal portion.  How can I override that so the interest does not include the 529?

[ErnieS0]

Your 529 withdrawal should not be showing up on your New Jersey return.

New Jersey allows you to withdraw up to $10,000 per year may be withdrawn from 529 savings plans, federal income tax-free, if used for tuition expenses at private, public and religious K-12 schools.

See: FAQs NJ Best

TurboTax adjusts for this.

Check your 1099-Q entries. Did you list Box 5 Type of Program as State and list New Jersey as the state sponsor?

[Stevenbirn]

Thank you for your response.  The 1099-Q entry for Box 5 is state but it does not give me the option of inputting the state sponsor.

[JohnW152]

You should be able to get back to that screen if you delete your 1099-Q and then re-input.

To do so in TurboTax Online, open your return in TurboTax and:

1. Select Pick up where I left off, if that’s on the screen

2. In the menu on the left, select Tax Tools, then Tools.

3. In the Tool Center pop-up, select Delete a form.

4. Select Delete next to Form 1099-Q in the list and follow the onscreen instructions.

Then, to re-enter your 529 qualified tuition program information in TurboTax Online:

1. If you’re on the Hi TurboTax Client, let's keep working on your taxes! screen, click the Pick up where you left off button

2. Click Federal in the left pane, if you’re not already there

3. Click Deductions & Credits in the banner

4. Scroll down and click Show more to the right of Education

5. Click Start to the right of ESA and 529 qualified tuition programs (Form 1099-Q)

6. Enter all relevant information on the subsequent screens