Should I be taxed on eligible 529 plan withdrawals for my full-time college student daughter even though she is not my dependent? Her mother is not claiming any credits.

[kurtahollasch]

I worked it through with an Expert and he agreed they are not taxable. My refund amount showed ~7k. When I checked my actual return posted to the IRS, it's down to $3k. When I try to amend it, TurboTax is not letting me claim her legitimate expenses against the 529 withdrawals.

[AmyC]

No, withdrawals that cover eligible qualified expenses such as room and board along with tuition and fees are not taxable and should not be entered. 

If you entered the 1099-Q, you must enter the 1098-T and other eligible expenses to remove the tax consequences.

If you filed showing a $7k refund but now see the IRS has adjusted it to $3k, you will need to wait for a letter or go online to your account to see the letter and learn what has happened.

IRS Publication 970, Tax Benefits for Education states that nontaxable distributions should not be entered. 

[kurtahollasch]

Hi Amy,

I did enter in the 1098-T and other expenses into TurboTax. The taxes refund was calculated correctly. I submitted my return. A couple of days later I checked on my refund status and the refund had changed back to showing my 529 withdrawals as taxable.  I don't think the IRS had anything to do with it. I think Turbotax submitted it incorrectly despite what it showed on the moment I submitted. 

Thanks,
Kurt

[AmyC]

You can go online to View your account information and see if the IRS has added a letter to your account so you can see what happened.

If there is an accuracy issue. you can submit a claim here. Be sure to download what you filed for your records.

[kurtahollasch]

Just spent an hour on the phone with a Product Expert, then a Tax Expert looking over an amended return. 

The conclusion from the tax expert: I entered everything correctly and the 1040 that came out was indeed incorrect (I am being shorted a refund by ~$3500) and she cannot fix it via an amended TurboTax return. 

So now I need to either file an amended return myself or pay someone else (a human) to do it.  

I used TurboTax maybe 20 years ago when it was terrible and thought I'd be safe to come back as surely the technology is so good, an error that could cost me thousands of dollars can't happen. But it happened. I was just able to catch it and to my surprise, Intuit can't fix it, even though they agree my return is wrong.