1099q payments from qualified education programs printed forms

[confusedrf]

In my daughter's fourth year of college and TurboTax has awarded me $2,500. However I'm noticing something when comparing this year to last year specifically on the printed forms that say qualified tuition program computation of taxable distribution...

Last year it showed her total distributions and that number was the same as that shown in adjusted qualified higher education expenses applied. This year the amount in total distributions does not match that shown in adjusted qualified higher education applied... it's off by about $8,000. I don't really understand this I'm getting the $2,500 credit it says but it also says about 2,200 in line 7  is the taxable amount to recipient. Does that mean I have to add that amount to my daughter's return because I've never put the 1099q or t on her return before. She works part time...hardly pays any tax.

Furthermore I'm just thoroughly confused as to how this is happening.

The 1099-t shows total payments received 51k ...scholarships or grants 23k. The balance of 28k is accounted for on the 1099 Q sheet where it shows a gross distribution of 27k and I wrote a check for $1,000 this year. So I didn't overdraw the 529 plan so what does it mean when it says the taxable amount to the recipient....

[KrisD15]

The program is allocating part of the expenses towards and education credit. 

Usually the credit for the parent is worth more than the tax for the student. 

If you are getting the American Opportunity Tax Credit, that credit maxes out with 4,000 expenses, so claiming more in expenses than that is silly. 

If you are getting the Lifetime Leaning Credit, it maxes out with 10,000 expenses. 

You have a couple options. 

1. If expenses are equal to or less than distributions/scholarships, and you don't want the credit, just delete the 1098-T and 1099-Q. 

2. If you do want the credit, and the credit is the American Opportunity Tax Credit, go back through the Education interview until you FINALLY reach the allocation page and change the amount of expenses to use for the credit to 4,000. If this results in 3,000 taxable income (because of your 1,000 out-of-pocket) the student claims that.

ADDITIONALLY be sure to enter additional expenses not listed on the 1098-T, particularly Room and Board expense. A distribution used to pay Room and Board is a non-taxable event. If at least 3,000 of distribution can be allocated to Room and Board, and with your 1,000 out-of-pocket, you would have the 4,000 needed for the credit and there would be no taxable income for the student to claim.

IRS PUB 970

[confusedrf]

I wish I could put your brain in my head for 5 minutes hahaha. I just have had a hard time with this  for 4 years , getting my head wrapped around all this. I don't want to take something I'm not entitled to and I don't want to mess up my daughter's tax return.

Bottom line v TurboTax does some sort of check and pops up a screen saying you're getting $2,500 in green and suddenly my refund grew by $2,500.... Am I good to go if I just leave everything the way it is?

When it says the 2200 is taxable by the recipient is 

me or is that my daughter? Again I've never entered the Q or t on her tax return , it's always been entered on mine although they're in her name.  I'm hoping it's me because I wouldn't know where to put the 2,200 on her tax return.

BTW, She lives at home and is a commuter I've never tried to input anything for room and board.

[KrisD15]

Yes, that sounds right and you can go with that if you like.

Depending on what your daughter earned, the additional income might not make a difference in her tax liability.  

The distribution is taxable to the taxpayer listed on the 1099-Q. If the program says the student needs to report that, it should give you directions for doing that. If not, then enter the 1099-Q on her return and report the portion used on your program (for education expenses) so she only claims the difference. 

There are tons of options with the education section, which makes it confusing. 

Additionally, some expenses make only some assistance tax-free. For example, pay Room and Board with a scholarship, and that scholarship is taxable income for the student. Pay Room and Board with a 529 Distribution and the distribution is tax-free.

The IRS is very generous with the education credit and encourages taxpayers to claim the credit if they are eligible, They also suggest allocating part of a scholarship and/or distribution to the student if that results in a more advantageous return for the parent. 

You are allowed to claim room and board expenses relating to a student that lives at home. If you wanted to add that, and/or books and supplies, the distribution might be tax-free while you also get the full credit. Ask your daughter about book expense since they can be pretty high. 

"Families may also be able to use 529 assets for room and board for students living at home. But the cost allowable must be lower than the cost of living on campus. Some colleges may specify a cost for “commuters” or “at home.” Still, the student at home would only be able to use the 529 savings for the lesser amount."

You can always go back through the education interview and add expenses.

Document what you did and keep everything with your tax file. 

Source

[confusedrf]

Well she made 11k.

I am hesitant to add this to her return because I have never done so in the past. Further I have never put down room and board for living at home. I would think that would be well in excess of $4,000? I mean the college is charginge 12k to live there. I think I might just leave everything as is and put a note in my records that I did not claim room and board and if something happens down the road I guess I could bring that up. ... And hopefully it would offset any issues that arise?

I could also delete all education stuff and start over... I do not recall TurboTax telling me I had to enter anything on my daughter's form. I just noticed it said $2,200 was taxable to the recipient so I assumed it should go in there somewhere on her return...I guess another option could be to do a dummy tax return for her and perhaps add the $2,200 to her overall wages and see if it would make a difference anyway? Thoughts?   It seems to be far more complicated than necessary!

[confusedrf]

Well for the heck of it I opened her return and just changed her W-2 to make it look like she made an extra $2,500 and yes it did affect the amount of her refund ..a hundred bucks or so... so I assume if I figured out where to put the information properly it would do the same.  I really hate to do this on her return because I never have before.

I'm going to try to figure out how to delete the education section and re-enter it and see if anything changes. I do not remember it telling me I had to do something on my daughter's return. Worst case if I'm audited in some fashion I hope I can Bank on the fact that a stay-at-home live at home eat at home room and board expense would easily cover 4k.  I'm glad she's graduating because this is a nightmare!

[AmyC]

For a student living at home, you have limitations. The 2021 Publication 970 - Internal Revenue Service states:

Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts.

a. The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the school. You may need to contact the eligible educational institution for qualified room and board costs.

[confusedrf]

Well it was 12 to 15,000 for her to stay on campus all year I remember having that fight hahaha.... So you were saying the school would determine what's reasonable for her staying at home and it would be potentially less than $4,000?  You should see the water bill alone this kid  runs up.

[confusedrf]

I don't know if this will help anyone else but I did find a method to the TurboTax madness.... Or perhaps government madness.. I'm not sure I fully understand it but I found a thing called the student information worksheet which describes the math on how it appears TurboTax is allotting some of my 529 payments to be taxable in order to get the benefit of the $2,500 rebate.

Maybe this makes sense to you accountants out there but here's what it looks like it's doing.

I start with 51k in tuition and 23k in scholarships that leaves 28K in expenses. For some reason it issues a 10K credit. I think somebody alluded to this in an earlier post. So now I'm at 18K inexpenses. I'm not sure what happened here... Nor do I understand it but nevertheless....

It next grabs the 27k gross distribution from the Q form and subtracts the now  18K in expenses... that gives us 9k that it's sort of looks like is being portrayed as an excess or an over distribution.

It next takes the 18K in expenses divides it by the 27k gross distribution yielding 66.6% which it now multiplies the basis of 7K by as found in box 2 on the 1099q... That yields $4, 666.  Then, the 7K basis minus the 4666 leaves 2333 which it says is taxable income to the recipient which I'm going to assume is myself even though it's in my daughter's name because I'm entering the Q and the T on my own return.

I'm not sure I understand what's going on but it seems to me TurboTax is saying if I pay tax on the $2,333.. which might be $200 or so... it'll give me the $2,500 credit.

If this makes sense to any of you people out there please let me know ... I will certainly sleep better...and also God bless you for understanding this!!! Thanks all.

[MarilynG1]

Try this workaround for the 10K Allocation on the Student Information Worksheet, per Expert @DavidS127:

"Note that when you have a 1099-Q (529 plan) distribution and someone on your tax return is also eligible for other education credits (such as the American Opportunity Credit or AOTC) there is a screen in TurboTax where you are asked to "allocate" education expenses to those credits versus the 529 plan distribution.  Generally, it is best to allocate enough (but only enough) to these credits first, with the remaining education expenses applied against the 529 plan distribution.

That allocation between education credits and 529 plan distributions can also be done in the Forms mode of your Download/CD version. Go to Forms mode and find the applicable "Student Info Wk".  Scroll down to Part VI and find line 17.  If you enter $4,000 on line 17, TurboTax will first use $4,000 of your qualified expenses for the education credits/deductions (e.g., AOTC) and then use the rest of the expenses you entered to apply against the 1099-Q (529 plan) distribution.  If you enter zero, all the expenses will be allocated to the 529 plan distribution."

[confusedrf]

Thanks... I did that. 

[confusedrf]

I never had the needs but room and board in but I did find a place for it. Since she did give me about $2,600 this year I'll consider that room and board I entered that along with her books and now it seems to have worked out. It doesn't say any recipient tax due or anything like that so I think I am good..thanks all.