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LaughTrack
Level 3

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

 
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KrisD15
Employee Tax Expert

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

No, that isn't what I'm saying. 

I included the quote from the IRS above.

 

Since you did not take an education credit on your 2019 tax year return, and the refund received in 2020 was for a distribution made in 2019 for 2019 expenses, disregard the refund. 

 

IF you had to do anything with it, you would refigure 2019 tax and claim the difference as income on your 2020 return, but you don't need to do anything since you didn't take an education credit on your 2019 tax year return. 

Don't enter anything about the refund into the TurboTax program. 

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KrisD15
Employee Tax Expert

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

What you need to be concerned with is if the expenses paid in 2019 (with the distribution) were used for a credit on your 2019 return. If not, and you returned the refund to the 529 account within 60 days, you don't need to report the 1099-Q. In this case you also cannot claim the returned refund as a contribution on your state tax return if that state offers a credit for contributions. 

 

This was something you should have addressed in 2020 for your 2019 tax filing. 

 

If by some chance you did use the expenses for a credit on the 2019 return, you would need to refigure the 2019 return without the credit and claim the difference as income on the 2020 return. This scenario would be unlikely if you were matching distributions to tuition.  The decrease in tuition for 2019 would be the same as the refunded distribution.  

 

According to the IRS:

Credit recapture. If any tax-free educational assistance for the qualified education expenses paid in 2019, or any refund of your qualified education expenses paid in 2019, is received after you file your 2019 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2019 by reducing the expenses by the amount of the refund or tax-free educational assistance. You then refigure your education credit(s) for 2019 and figure the amount by which your 2019 tax liability would have increased if you claimed the refigured credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received.

 

 

IS Pub 970

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LaughTrack
Level 3

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

Well, I didn't claim any credit in 2019 other than exempting the 529 withdrawals in 2019 from taxation.   When the covid related refund for room and board came in 2020,  I put it back in the 529 as the 529 sponsor suggested.   Are you telling me I need to refile 2019 taxes?  Seems pretty extreme for a refund that I didn't expect and I recontributed within 60 days.   I can't see that I've taken advantage of any of the "tax deductibility of 529's" nor did I receive any education expense credit in 2019.

LaughTrack
Level 3

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

None of this would pertain if I had paid the 2020 expenses in January 2020 instead of December 2019.   I received no extra tax benefit from paying them in 2019.

KrisD15
Employee Tax Expert

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

No, that isn't what I'm saying. 

I included the quote from the IRS above.

 

Since you did not take an education credit on your 2019 tax year return, and the refund received in 2020 was for a distribution made in 2019 for 2019 expenses, disregard the refund. 

 

IF you had to do anything with it, you would refigure 2019 tax and claim the difference as income on your 2020 return, but you don't need to do anything since you didn't take an education credit on your 2019 tax year return. 

Don't enter anything about the refund into the TurboTax program. 

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**Mark the post that answers your question by clicking on "Mark as Best Answer"

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LaughTrack
Level 3

Refund of Qualified Educational Expenses: I received a refund in spring 2020 of expenses I paid in 2019 which I rolled back into a 529, but Turbo Tax is telling me I can't do this as my 2020 expenses don't account for the refund.

OK, thanks much.  Turbotax wouldn't let me enter the refund, anyway.

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