529 Withdrawal and American Opportunity Credit

Forum|Forum|4 years ago
February 22, 2022
2 replies
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In 2021 I withdrew from the 529 and received a grant through the 529 from NJ Best for my son's college tuition and books. Turbotax allocated $4000 from the education expenses for the American Opportunity Credit which resulted in some of the withdrawal being taxed. I ran the different options in Turbotax and this was better than if the whole 529 was tax exempt. Since I did this for federal do I have to allocate the same for the New Jersey return? For the New Jersey return I do not have to consider the AOC so would not have to declare any of the 529 earnings but it will differ from federal. Do New Jersey state and federal have to be the same for the 529 withdrawal?

DavidD66

Please clarify: Did the grant pay for all of your son's tuition and books?

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StevenbirnAuthor

The total tuition and books was $6161.46. The scholarship was $1250 and the 529 withdrawal was $4800 ($1695.92 basis and $3104.08 earnings). Turbotax calculated for federal the best return is $2515 as taxable income (other income on schedule 1) and $4000 towards AOC. Turbotax applies the $2515 to the New Jersey return as interest. If I apply the $2515 as taxable with federal do I have to apply the $2515 as taxable interest for New Jersey? If not then New Jersey will not be taxed for the $2515. Thank you for your assistance.

DavidD66

If you elect to treat part of 529 withdrawal as taxable income, you cannot treat it differently on your New Jersey return. It will be taxable income for both.

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tunaboiling

Be very careful with Turbo Tax and 529 payouts. I have now gotten 2 letters for 2 different Tax Years stating I owe the IRS money for 529 plan payouts. Has to due with taxable income which Turbo Tax apparently has issues with and have been trying to contact them for help and its been crickets. Very disappointed in Turbo Tax currently.