1098T and 1099Q for graduate student

[confusedrf]

Got....it So I am guessing that that 3K in earnings probably is costing her three hundred dollars since I originally saw her Refund drop from nine hundred  to six  hundred after entering the q and t forms , but before completing the interview. 

I  think I'm happy just getting the extra two k back to put towards next year's tuition and if it issue ever becomes of this , perhaps the room and  board could be brought up doesn't sound like I'll  need it though.

Is this lifetime learning a one time thing? She has one more year of school to go.

OH YEA... How does this affect my state taxes? Because initially upon putting that 10000 in and getting the 2K lifetime learning her P. A State tax code went from 0 to $500. But then while doing the state taxes somewhere in  there I punched in her tuition of 15K. And  Payment from her five twenty nine of 15k and it went back down the zero... I can check it again And provide the exact area I did that...but does this sound right?

[Hal_Al]

Q. So I am guessing that that 3K in earnings probably is costing her three hundred dollars.

A. Yes.  @$37K income, she's in the 12% bracket.  $3000 x 12% = $360. An average amount of R&B should save her $200.

Q. Is this lifetime learning a one time thing?

A. No. Unlike the AOTC, there is no limit on how many times the LLC can be claimed. 

Q.  How does this affect my state taxes?

A. I'm not familiar with PA, specifically.  But in general, any income added to the federal return ($3000 in this case)  automatically transfers to the state return.  $3000 x 3.07% = $92

[confusedrf]

I'm looking again and under state taxes. There's a compensation summary. It

 proceeds to walk you through unreimbursed job expenses..... and eventually you land on a qualified education distributions screen.  It seems to be filled in. It says 'you entered the following qualified education payments on your federal return state qualified tuition plan'. That's where the 15k shows up. Then it says taxable distributions $1979. I have no idea where that comes from.. Hitting next on this informational screen lands you on a screen where I need to enter stuff. First, it asked total distributions from your federal return.  I entered the 15k.Then it asked the amount used for qualified education purposes. I again enter the 15k... I hit continue and it says 'none of your qualified education plan Distributions' are taxable in pennsylvania.... So I guess i'm good?

[AmyC]

If you made it to the state, you got through federal. You must have found a little extra and zeroed out on state expenses and all is well. You made it! Have a great day!

[confusedrf]

I do not recall zeroing anything out with regards to expenses...just answered questions...i outlined the  the process in prior post.....

[AmyC]

You state "the 15k shows up", "then taxable distribution," kept going, "distributions from your federal return.", entered15k, then "qualified education purposes. I again enter the 15k." 

If you have a 15k distribution and mark all 15k used for education, you have zeroed out so that none of it is taxable. If you should have a taxable amount  you should not have entered 15k for qualified expenses.

[confusedrf]

I did have 15k in tuition expenses and used 15k from the 529 plan. For the federal I opted to pay tax to get LLC...

Is the state handled independently? It prompted for tuition expenses...I put in 15k on state ... and entered 15k from 529 plan on state...said no tax due...

?

I screen shot the screen if that helps.

[AmyC]

Yes, PA will be handled separately and you did the right thing marking the amount received and used so that you are not paying tax on that amount since there are no credits as on federal. It looks like you made it through!

PA DOR states: Distributions from an IRC Section 529 College Career and Savings Program Account not used for qualified educational expenses are taxable and reportable as interest income on PA Schedule A and Line 2 of form PA-40. The cost recovery method must be used to determine the taxable amount for contributions made in tax years 2005 and earlier. The total amount of distributions that were claimed as deductions for tax years 2006 and later is taxable.

[confusedrf]

Thanks Amy and everyone....I think I have a better understanding of all this.  I am glad my daughter will not miss out on the LL...in fact it will go towards her next bill as her 529 plan is running out!!! 

[confusedrf]

OK, I'm beating a Dead Horse. But can anybody explain where the nineteen hundred seventy nine dollars came from on line8 of the 1040 form? I am figuring It has to do with the q and t forms and me entering ten thousand dollars in the interview  and it treating part of the 529 distriibution as taxable so i could get the LLC. Does it sound correct?

I was looking through The forms Turbo tax printed.... Thinking it would explain how it came up with that amount But I simply see nothing.

 The $1979 appears on form 5329 in section part 2 item 5 and 6. How is this calculated and off of what.... i'm assuming that it's something to do with the q and t forms... 

....thoughts

I just want to be sure i'm safe before I submit this.

[Hal_Al]

Q.  Can anybody explain where the $1979 came from on line 8 of the 1040 form? 

A. Yes. It came from Schedule 1. The taxable portion of the 529 distribution will be on line 8z of Schedule 1.  There will be a 1099-Q worksheet in your forms to show the calculation. 

The calculation essentially goes like this: non qualified portion of the distribution divided by the total distribution equals the taxable percentage of the earnings.  That percentage times the box 2 amount on the 1099-Q equals your taxable income.

Example:
  $10,000 in educational expenses(including room & board which is only qualified for the 1099-Q)

   -$3000 paid by tax free scholarship

   -$4000 used to claim the American Opportunity credit

 =$3000 can be used against the 1099-Q (on the recipient’s return)

Box 1 of the 1099-Q is $5000

$5000 - 3000 = $2000 non qualified distribution

2000/5000=40% of the earnings  are taxable

Box 2 is $2800

40% x 2800= $1120

There is  $1120 of taxable income (on the recipient’s return)

Q.  I am figuring It has to do with the q and t forms and me entering ten thousand dollars in the interview  and it treating part of the 529 distribution as taxable so i could get the LLC. Does it sound correct?

A. Yes

Q. Why does the $1979 appears on form 5329? 

A. Form 5329 calculates the 10% penalty on a non qualified distribution OR it claims the exception to the penalty. If line 8 of part 2 of form 5329 is blank or 0, you are not being charged a penalty. Claiming a tuition credit, by diverting tuition from the 529 distribution is a penalty exception. 

Q. I just want to be sure i'm safe before I submit this?

A. Review the calculations on the work sheets.  $1979 sounds reasonable  (not using room & board).

[confusedrf]

You make it sound so easy. I guess what I get confused about is.... What is the non qualified portion of my distribution. Recall , my 1099q has a box one distribution of 15k earnings of 3k and a basis of 12k. I entered 10k in the interview which allowed me to get the 2k lifetime learning credit. When I entered the $10K was I essentially saying I want to consider $10k of the 15k box 1 distribution to be non qualifiable to get the LLC?

So then it took 10k divided by box 15k yeilding sixty 67% and multiplied that by the earnings on box two coming up with additional income of 1979?

 If this is how it works , let me know because i'm gonna bookmark this post because this will happen again next year!

[Hal_Al]

Q.  So then it took 10k divided by box 15k yielding 67% and multiplied that by the earnings on box two coming up with additional income of 1979?  Is this is how it works?

A. Yes.