529 plan and form 1099-Q with online college - UMGC

Forum|Forum|4 years ago
March 28, 2022
2 replies
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I completed the education expenses and entered the 1099-Q form. My daughter is attending UMGC which is university of Maryland Global campus - which is completely online. The expenses were completely paid for with the 529 plan funds. I entered this on the parent return and it is saying looks like your 1099-Q is taxable - based on the education expenses you entered the student beneficiary must report 301 of taxable income for distribution.

Not sure what this means - wondering if I just don't qualify for a tax credit here and if this should even be entered. It also shows $0 in turbo tax.

I already filed the student taxes separately.

thanks

TurboTax Home & Biz Windows

JillS56

It sounds as if you are not eligible for the education tax credit.

It is possible that a portion of the 1099-Q is taxable if the amount of the 1099-Q is in excess of the total amount of tuition reported or shown on the 1098-T.

If you have entered your 1099-Q and your 1098-T and you have excess then the excess will be treated as income.

You are not required to report a 1098-T on your tax return. To calculate if you are eligible for AOTC, take the amount in Box 5 (scholarships) of the 1098-T and subtract the amount in Box 1, this is the amount that would be eligible for the tuition credit. If you received more in scholarships Box 5 than the tuition in Box 1, the excess is taxable and should be reported as Other Income. However, if the amount in Box 1 is more than Box 5, then you might not want to report the 1098-T.

Funds distributed from a 529 Plan, will be reported by the bank on Form 1099-Q. The 1099-Q is sent to the owner/recipient of the 529 Plan funds. The Form 1099-Q is to be reported as income if they were not used to pay qualified college tuition/expenses. If the amount reported on the 1099-Q were used to cover qualified college tuition/expenses you do not need to report the income. If the amount exceeds the amount of college tuition/ expenses then the excess needs to be reported as other income on your 1040.

In summary, if the 1099-Q distribution is enough to cover the tuition, room and board, other expenses, and Box 1 of the 1098-T is more than Box 5, then you might not want to report the 1098-T as this will create excess income and you will have to report the income as other income. The 1098-Q does not have to be reported, but it does need to be taken into consideration and if you are going to attempt to get the AOTC credit, then you do need to report the 1099-Q on your taxes. The 1098-Q should also be reported if the distribution was more than your tuition, room and board, etc.

It sounds to be based on what you have stated, that the amount of your 1099-Q is in excess of the amount of Tuition shown on the 1098-T and you are not entitled to a tuition credit (education credit) and no one will be entitled to the education credit as the amount of the distribution from the 529 Plan is sufficient to cover all of the qualified education expenses. One cannot claim the education credit and not pay taxes on the distribution from the 1099-Q. As stated above, the 1099-Q and the 1098-T do not have to be reported.

If the amount reported on the 1099-Q were used to cover qualified college tuition/expenses you do not need to report the income. If the amount exceeds the amount of college tuition/expenses then the excess needs to be reported as other income on your 1040.

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!

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."

Room and board (even for online students) and books and computers are also qualified expenses for a 1099-Q distribution. Be sure to factor those expenses into your calculation.

If you do need to enter everything in TurboTax, be aware that there are three things you can do with your Qualified educational expenses (QEE):

Allocate then to scholarships (so that the scholarship remains tax free)
Use them to claim an education credit
Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

TurboTax allocates QEE, in that order, until you tell it otherwise.

One possibility is that TurboTax allocated part of your dependent's college expenses to claim the Tuition credit, even if you are not eligible or otherwise did not claim it. That reduces the amount that can be used to claim the 529 earnings, shown on the 1099-Q, as being totally tax free. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it. You may reach that screen sooner.