1099-Q and Scholarships

[bg33]

My son received a full scholarship in the fall.  We have been saving to a 529 plan and we decided to take out a non-qualified withdraw in the scholarship amount under the other distribution guidelines.  Just added the 1099-Q document to TurboTax and it appears it is applying a tax to the gross distribution (close to 10%).  I know I have to pay income taxes on earnings but this is being applied to the gross distribution as a distribution tax and shouldn't.  Please advise.

Thanks

[MinhT1]

When you withdraw from a 529 plan for non-education purposes, you have to pay tax on the earnings part of the withdrawal AND a penalty of 10% of the earnings.

[bg33]

That's not what is stated in Pub 970?  Read page 60 & 62.

[MinhT1]

When your son receives a scholarship, the penalty of 10% is waived, but you still owe tax of the earnings portion of your withdrawal (at your marginal tax rate).

Sorry for the confusion.