529 and scholarship

[user17707051987]

Kid got $9000 in scholarship which I withdrew from the 529, but cant get TT to avoid penalty.

Withdrew from 529 $31372 total, $22057 paid to the college, $675 in books, and $9k for scholarship (principal $5371 and earnings $3628).

Entered 1098T and 1099Q, entered books, the 1098T had scholarship listed. 

1040 Schedule C lists $6359 as "other income from tuition program from 1099Q". Should not it be $3628? Not sure how it arrives to $6359 at all.

[AmyC]

Logically, the 529 max would be $3628. However, due to the scholarship, it looks like you took a non-qualified withdrawal. The math is $31,372 taken - tuition $22,732 = shortfall $8640.

The reason your "Other Income" is showing $6,359 instead of your expected $3,628 is likely because the software is seeing a "gap" between your total 1099-Q distribution and your reported "Adjusted Qualified Education Expenses" (AQEE).

1098-T: Ensure the $9,000 scholarship is actually entered in the 1098-T section.

The "Penalty Exception" Screen: Look for a screen titled "Did [Student] Receive a Scholarship?" or "Penalty Exceptions." You must explicitly enter the $9,000 here. This tells the software: "Yes, this money was non-qualified, but don't charge me the 10% penalty because of the scholarship."

Be sure to check my other answer on your other thread about maybe getting rid of the 1099-Q.