529 Distribution and Tax Credits in Turbotax Premier

Forum|Forum|3 years ago
April 4, 2023
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This is my daughter's first year of college towards a 4-year degree. We paid for $22K in tuition, fees, room and board. She paid for her books herself. We took a $17,600 distribution from her 529 plan to pay for the $22K. We planned for the difference between the $17,600 distribution and the $22K in fees to apply towards the AOTC.

The school provided a 1098-T with $8475 in box 1. That amount does not include room and board ($12K), which I can see we enter on the Education Expenses page. However, there are still $1K in required fees (not books or materials) that may not be tax deductible but are allowed expenses for the 529 distribution. The University told me that these fees are "program fees" and not "university fees" which is why they aren't included in Box 1. Questions: (1) Where do I enter those required fees (in premier) to count towards the credit? (should I edit the 1098-T amount)? (2) I should enter 0 on the "Choosing a larger education credit" page for my situation, right? (3) Do I enter what my daughter spent on books if she paid for them?

Not A Product Question

AmyC

Employee

Priority work through and then answers. Correct, the 1099-Q from the 529 covers room and board. See 529 for Room and Board. Therefore, start there.

529 distribution $17,600 -$12,000 = $5,200 to use on tuition and qualified expenses.

No problem, Box 1 $8475 -$5,200 = $3275 not used by the Q.

The 1099-Q should not be entered but tucked into your tax folder. Pub 970 states: Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.

Now we turn to the AOTC - it is only good for 4 years. It requires $4,000 be spent for maximum credit.

We actually have $4275 left from the 1099-Q since the Q could cover the $1k in extra fees.

If you did not have that extra $1k, you can add books, supplies, etc to hit the magic $4,000. If you are claiming the student as a dependent, whether she used her credit card or yours doesn't matter since you end up paying the bills.

1. I would not enter the 1099-Q or the extra $1k in fees as none of it is needed.

2. You only need to enter the 1098-T. The program will calculate the $4,000 credit for you. Modify your answers for correct credit.

3.The books will not help so it doesn't matter who paid. If they would help, yes, enter the expenses.

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jason100Author

Hi AmyC - Thanks for your quick response!

Question: In the Turbotax questionnaire, should I just say that I didn't receive a 1099-Q? Does it matter that I am the recipient (box 6 is checked) and my daughter is the beneficiary?

Hal_Al

Employee

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 also cannot count expenses that were paid by tax free scholarships. You cannot double dip!

Reference: 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."

@jason100 said: "We paid for $22K in tuition, fees, room and board....We took a $17,600 distribution from her 529 plan to pay for the $22K".

$22,000 - $17,600 = $4400 That can be used to claim the American Opportunity Credit (AOTC) and the 1099-Q is still fully covered by qualified expenses, so it is tax free.

Q. What is the procedure in Turbotax Premier software to: "not enter the 1099-Q or the extra $1k in fees"?

A. Just don't start the 1099-Q interview. If you already did, re-enter and delete the 1099-Q.

Q. Do I say I didn't receive it?

A. Yes. The 1099-Q is only an informational document. It is not required to be reported on your tax return.

As for claiming the AOTC, you can enter the 1098-T exactly as received, since you only need $4000 of the $8475 in box 1.