1099-Q and 1098-T Question

[user17727319970]

I have a 529 for my kids that I use to pay tuition, qualified expenses for my son's 2025 graduate school.  He is the beneficiary (I am the owner).  We paid the school directly for all costs in 2025.

The 1099-Q amount paid ($13,388.00) equals the total of the payments received on the 1098-T ($16,440.00 - $3,052.00 [scholarship]).

I am getting a schedule 1 (line1z) taxable income on his return for $5,218.00.  I don't know why this is the case when 100% of the 529 distribution went directly to the school and the amount of the distribution equals the payments received (less the scholarship). 

We didn't have this problem last year and I don't know how to fix it.  Last year, he received his undergraduate degree from the same school and is now in their Master's program.

Can someone help?

[AmyC]

Yes, you should remove the 1099-Q since it is not taxable. IRS Publication 970, Tax Benefits for Education states that nontaxable distributions should not be entered. You should keep the form and supporting documents with your tax file, in case the IRS does ask in a few years.

You should be able to enter it without a tax so my guess would be in the education section that the program is trying to hold some of it -up to $10,000 for the lifetime learning credit. If you don't enter the forms in a certain way, Q first, then T, you can end up with a taxable amount.

The IRS actually does say that they prefer not to deal with forms that are not taxable, I do recommend you remove it.