Do I actually need to pay more taxes just because 1099Q 529 funds were fronted by me?

[mvlaj5]

I have 2 children/dependents attending college with grandparent funded 529 accounts. I received 1099-Q forms for the funds sent directly to the schools showing them as the recipients, which, when entered, do not impact my taxes. I also received a 1099Q form for the portion of funds sent directly to me (which I paid due to timing/convenience issues like tuition adjustments and living expenses). When I enter the 1099Q showing me as recipient, it negatively impacts my taxes, but my dependents are the beneficiary and the 529 expenses are legitimate. It's the same money and purpose, I just fronted the funds. Do I actually need to pay more taxes just because the 529 funds were fronted by me? How do I handle this situation? Thx.

[Fern · Accepted solution]

Because you are the custodian of the account, a 1099 Q will be issued to you and you must enter it in your tax return.  Make sure you have indicated who the student is on the screen titled Student – see screenshot below.

If the funds are used for a person you are claiming as a dependent, select the name from the list of people in your tax return. Then you will enter her 1098 T information in the tab - Expenses and Scholarships (Form 1098-T).

Keep in mind that 529 money can be used for more than just tuition and fees. Make sure you go through Other Education Expense section.

If the tuition and expenses entered are greater than the distribution from the 1099 Q, the distribution will not be taxable.

To report the 1099 Q in Turbo Tax:

Select Federal Taxes
Select Deductions and Credits
Select Show More at Education
Select Start or Revisit at ESA and 529 qualified tuition programs (Form 1099-Q)

To enter a 1098 T in Turbo Tax:

Select Federal Taxes
Select Deductions and Credits
Select Show More at Education
Select Start or Revisit at Expenses and Scholarships (Form 1098T)