Why is my 529 distribution showing up on my wages & income

[Hal_Al · Accepted solution]

If the distribution, from the qualified tuition (529) plan, was totally spent on qualified educational expenses, you do not need to report the 1099-Q as income. However, if you claimed a tuition credit, you may not count the same expenses that you counted for the credit, against the 1099-Q. 

TurboTax (TT) uses part of your tuition expenses to claim a tuition credit. Since you are not allowed to double dip and claim a 529 plan tax exclusion for the same expenses. some of the distribution is taxable.

Here,s an example:

  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship

   -$4000  used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)