529 withdrawal for scholarship proceeds

Forum|Forum|4 years ago
March 21, 2022
1 reply
0 views

My daughter received a $12,500 scholarship with additional tuition expenses of $57,500. Her 529 plan paid the tuition, but as I have no other dependent to assign the 529 to, I withdrew the amount of the scholarship. I received 2 1099-Qs - One in my daughter's name for the tuition and room & board, and one in my name for the scholarship + additional expenses paid (books, computer) that I withdrew. I believe I should be paying tax on the earnings ($9500) from my 1099-Q but no penalty as the scholarship is tax-free. From what I've read on this forum, TT should be generating Schedule 1 and Form 5329, however it has not done so. We are not eligible for the AOC or LLC. I entered my 1099-Q form and the 1098-T. I also tried entering her 1099-Q as well, but nothing changed. How do I proceed?

Hal_Al

Employee

I assume your daughter is your dependent. You are correct, TT should be putting the income on line 8z of Schedule 1 and generating Form 5329 to claim the penalty exception. But you don't explain how you entered the ADJUSTED educational expenses and scholarship. Enter your 1099-Q first. Then enter her adjusted educational expenses (what she didn't claim against her 1099-Q).The simplest thing to do is enter a 1098-T with the adjusted expenses (the amount paid by scholarship + the computer & book costs) in box 1 and the scholarship amount in box 5.

Review the numbers on the student information worksheet and the 1099-Q worksheet to see if they are correct. One frequent error, TT may not "sense" that you do not qualify for a tuition credit so it allocates expenses to the credit (sometimes $4000 but usually $10,000).

Go through the education section again. 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 (to 0 in your case).

Instead, in the education interview, you may reach a screen titled "Choosing a larger education Credit". Verify that TT has entered $10,000 (the amount needed to get the maximum LLC) in the box on that page. In your case, change it to 0.

PLAN C. On the Student Information Worksheet (abbreviated Student Info Wk on the forms list), go to part VI and change line 17 (“Used for credit”) to 4000. Make the change in the first column. That will automatically change the other columns.

pnolan1Author

Thanks Hal_Al. Just to be sure I did it correctly, Box 1 of the 1098-T would only include the amount I received on the 1099-Q and I would include the scholarship in Box 5? I deleted my prior entries for room & board in the education interview and it now seems correct with Schedule 1 and Form 5329.

I went through the Education section again, but never got to the screen titled "Amount Used to Calculate Education Deduction or Credit". It did recognize that my income exceeded the threshold and I was not eligible for the credit. I reviewed the worksheets for the 1099-Q and the student information worksheet. Part VI, line 17 shows 0 so I think I'm good to go.