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confusedrf

Question

Can someone answer this 1099Q / 1098T question...it seems to be a common issue..that confuses all...PLESE HELP!!!

Forum|Forum|6 years ago
February 15, 2020
2 replies
0 views

I do not recall how I go thru this last year and the software has not improved...it confusing.

Simple, common situation. Daughter in college.

Received 1098T. Box 1 Payments received for qualified expenses is $40K. Box 5 - Scholarships/grant is $22K. My daughter is listed on this form.

Received 1099Q . My daughter's name is in the recipients box. Nothing is checked in Box 8 - ...ie she IS the beneficiary. Box 1 Gross Amount is: 11K. Box 2 Earnings is: 4K. Box 3 Basis is: 7K.

So, in general, we (her parents) received a bill from the college of about $17k and paid it using her 529, a small federal loan and some cash. There was no excess dollars left over from the 529 withdrawal...it all went right to the school.

I think I understand I should enter the 1098T on MY tax return. Doing so seems to get me a $2500 credit. I think I get another $500 since she is a dependent.

My daughter is also filing a return for herself...she earned $4k on a summer job and most likely is due her $300 in fed taxes back....it indicates so until we enter the 1099Q on HER return.

So, where does the 1099Q go? On my return, her return or no return.

If I enter it on her return (and many posts say it must go on the recipients return) then suddenly it says she owes $450 in taxes instead of getting back $300. I figure that is because the 1098T is no where to be found to offset things,

If I enter it on MY return (I already entered the 1098T) it pops up a message that says something like $2K is taxable...BUT the amount it has calculated to that point for MY refund does not ever change. So who is responsible...what is TT trying to tell me.

If I do not report it all...well that does not seem right.

I am trying to dig out my return from last year to see how I handled it but to be honest I was confused then as I am now. I want to get this right..the last thing I need is an audit and owing back taxes when she graduates...and is looking to me to help with her masters degree since by then the 529 will be depleted!

TurboTax Home & Biz Windows

Hal_Al

Employee

Here's the simple solution: don't enter the 1099-Q at all. Like you said, it's too confusing. if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. 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! 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. It will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

Do enter the 1098-T on your return so that you can claim the tuition credit. You have sufficient expenses to qualify, even after factoring in the 1099-Q.

Q."Doing so seems to get me a $2500 credit. I think I get another $500 since she is a dependent"?

A. That is correct!!

Q. "If I do not report it all...well that does not seem right".

A. Whether you enter it in TT, or not, it does not get "reported" to the IRS because the taxable amount is 0.

**The math: 40K expenses minus 22K scholarship = 18K. 18K minus 11K paid by 529 plan = $7K eligible for Tuition credit (it's actually much more since 529 money can be used for room & board). But it only takes $4K of expenses to get the maximum $2500 credit

______________________________________________________________________________

Info only (if you insist on entering it);

Problem: "suddenly it says she owes $450 in taxes instead of getting back $300. I figure that is because the 1098T is no where to be found to offset things".

You have to enter the 1098-T on both returns. To claim the credit on your return and to enter offsetting expenses on hers. You have to adjust her expenses for the $4K you claimed (it's all in TT, just complicated)

Problem: If I enter it on MY return (I already entered the 1098T) it pops up a message that says something like $2K is taxable...BUT the amount it has calculated to that point for MY refund does not ever change. So who is responsible...what is TT trying to tell me

You've simply made a mistake (it's complicated). See the math above, nothing is taxable.

confusedrfAuthor

WOW...you cleared up a bunch of stuff for me. It sounds like I just enter the 1098T on MY return and file the 1099Q away.

However...I never understood HOW I got the $2500 awarded to begin with...if you need not enter the 1099Q I assume it just looks at the difference between the total expenses on the 1098T and the scholarships/grants...but I suspect its not that simple!!!

It sounds like to get the $2500 you must have 'expenses' greater then '4K' if I understood you. I am getting worried again. I guess my question is what are my expenses? My 1098T shows $40K tuition/expenses. It shows 22K scholarships/grants. That leaves what I would consider 18K balance expenses for the year and that's a lot more than $4K! . But I am guessing that not what the gov considers expenses...

That 18K balance was paid by:

1099Q:

Box 1 -$11K payment to the college

Box 2 - 4K of the 11K was 'earnings' which I assume to be interest earned (tax free) over time

Box 3 - 7K of the 11K was 'basis' which I assume to mean money my wife and I put into the 529

Then we have:

6K in Federal Loans Accepted by my ''daughter

And finally around:

1K Cash for books and stuff we paid out of our savings account

So the big question is: based on the above, should I be getting the $2500????? TT seems to think so whether I enter the 1099Q or not.

SO, what exactly counts towards that 4K magic number you mentioned? The 1K from my savings? The $6K loan my daughter accepted? The entire 11K payment made from the 529 to the college? Only the $7K Basis from the 529 payment?

I do not know how TT determines all this or if its something I must determine for myself.

So, Hal_AL….you cleared one thing up for me and I appreciate that more than you can imagine...can I go to the well again and ask you or anyone else for help on the second matter?

Hal_Al

Employee

You're making it unnecessarily complicated. Your math is very simple. You get the full $2500 credit. None of her scholarships or 529 distribution are taxable** or reportable. .

40K expenses minus 22K scholarship = 18K. 18K minus 11K paid by 529 plan = $7K eligible for Tuition credit. So, yes, the 1K from savings and the $6K loan counts towards that 4K magic number. Even though the loan was your daughter's, you get to count it on your return, because she is your dependent

Qualified expenses for the tuition credit include tuition, fees, and course materials (books and computers). Qualified expenses for a 529 plan include tuition, fees, course materials plus room and board. The $40K, in box 1 of the 1098-T, does not include room and board.

So yes, again, you should be getting the $2500!!!!!!

** Many taxpayers (or their student dependent) have to pay tax on scholarships or 529 distributions, in order to claim the very generous American Opportunity tax credit (AOTC) (up to $2500). On the other hand, there are "taxpayers" who claim it without paying anything (even though the student must report taxable scholarship, it doesn't actually get taxed until the student has over $12,200 of income).

confusedrfAuthor

Jeez...just when I thought it was getting less complicated! I'll need to absorb all this.

The basis portion of the 529 was cash we took out if savings and out into the 529 to grow......why doesn't that count toward the $4k!

So if I just charge her room and board of $4k each year...I need not worry about anything else....but how must that be documented...what records kept...where is it entered into TT...plus she makes less than 5k over the summer so doesn't that look fishy...or is this money she would 'owe' us over time.

One thing my wife mentioned...she says she gives my daughter money for gas to get back and forth and money for food...over two 15 week semesters the gas is probably $800 and food could be close to 3k.....that's almost 4k right there...would this count towards the 4k ??? a if so I assume I should track it for our records...does it get entered into TT.

I have been buying her books and software out of pocket...not really putting them into TT too. That's another $500 or so a year....

Hal_Al

Employee

You're getting bogged down in irrelevant details.

The basis portion of the 529 was after tax money and is already include in the gross distribution (box 1). You can't double count it.

You don't really need to charge her anything. You are putting out cash to buy her food. That's good enough. You don't need receipts; the IRS *always* accepts the school's board numbers. I'm sorry I mentioned the "charging" concept. I don't think it's needed. Others have suggested charging rent (but not board) would be a CYA technique.

Transportation (gas) is not a qualified educational expense.

Out of pocket books and software are qualified expenses

confusedrfAuthor

Thank you so much. I think I am ok and understand.

One final one...Must I show room and board, or food as you mentioned etc somewhere in TT or just enter the 1098T each year and file away the 1099Q. I appreciate your time. I know others who follow this link will benefit.