1099-Q Earnings are showing me tax liability on the Earnings.

Forum|Forum|4 years ago
April 11, 2022
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1099-Q Earnings are showing me tax liability on the Earnings. Why is this. Student didnt have any scholorships so what is going on. Is this subject to income limits?

hbl3973

Employee

MNBlacklab,

You may be jumping the gun here. 1099-Q distributions are only taxable when not used to pay qualified expenses that include items such as room and board in addition to tuition. (See IRS publication 970

https://www.irs.gov/pub/irs-pdf/p970.pdf

for the full list.)

As noted by Kathryn Flynn in

https://www.savingforcollege.com/article/reporting-529-plan-withdrawals-on-your-federal-tax-return

it is up to you to determine if any of the amount is taxable. So take a look and see if you have forgotten to, or just haven't yet, entered the amount of qualified expenses that were paid for with the 529 plan distribution.

Finally, any amount of tuition paid with 529 funds cannot be used for the American Opportunity or the Lifetime Learning tax credit. So treat 529 distributions as covering the non-tuition expenses first before eating into the expenses that do qualify for the tax credits.

MNBlacklabAuthor

Yes I agree, but somehow my 1009-Q is showing taxable on the gains of the distribution in turbo tax and the fund were used for elbible fees for tuition

Hal_Al

Employee

The earnings exclusion for 529 plans Is NOT subject to income limits.

There's a glitch in TurboTax (TT). It does not "sense" that you do not qualify for a tuition credit so it allocates expenses to the credit (sometimes $4000 but usually $10,000).

The 1099-Q and the 1098-T are only informational documents. The numbers on them are not required to be entered onto your (or your student's) tax return.

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You cannot double dip!

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."