Distribution on 1099-Q at end of 2021 did not reach college until Jan 2022, not on TY 2021 1098-T

Forum|Forum|4 years ago
April 9, 2022
2 replies
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A check was cut from a 529 to pay for spring tuition, plus room and board. The check was cut in very late December of 2021 and was not received until after Jan. 1 2022 at the college. Because of this, the TY 2021 1099-Q shows the distribution but the TY 2021 1098-T from the school does not show at least the tuition. This is causing TurboTax to think that the distribution is taxable. How can I account for this discrepency? And how do I also account for the room and board (not on the 1098-T) since it was also considered paid after Jan. 1, 2022 by the school?

Hal_Al

Employee

Just don't enter the 1099-Q.

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."

Technically, a 529 distribution must occur in the same year the expenses were paid. This problem, of mismatched year end distributions, is fairly common. Treat it as received in 2022 and report it next year. And hope you can explain it away if you receive an IRS notice. You certainly meet the intent of the 529 rules, if not the strict letter. We haven't seen any reports, in this forum, of how that specific problem has actually worked out.

Do a better job on timing next year

JeffDomoAuthor

Thanks for the response. I have a few follow-up questions based on your answer:

1 - Even if partial 1099-Q is legit for this year, just ignore the entire 1099-Q for this year?

2 - What do I do about the 1098-T, still report that?

3 - Do I still report room and board expenses that area allowed as 529 expenses?

As far as timing goes, This is the last tax year this would possibly be a timing problem as my child graduates this fall!

Hal_Al

Employee

You have to determine what the outcome of all that is.

As others have said, neither the 1098-T or 1099-Q have to be entered in TurboTax just because you received them

If you eligible for the Tuition credit, then you need to enter the 1098-T.

If none of the 1099-Q is taxable, then it does not need to be entered.

You only need to enter room and board, if you know the 1099-Q is taxable or partially taxable, to get TT to calculate the taxable portion.

If you need more specific help, provide actual numbers.

KrisD15

Going forward, have the funds sent directly to the school to avoid this from happening in the future.

A 1099-Q and 1098-T are not forms that need to be reported on a 1040, only the income or credits relating to those forms are reported.

If the entire distribution was used for education expenses, including Room and Board AND

if there is no income the student needs to claim because of receiving more scholarship than tuition expense AND

if you are not applying for an education credit

those forms needn't be entered. Keep proof of payments and the forms with your tax file.

If you are going to enter the forms, the TurboTax program will use the INFORMATION from those forms to generate Form 8863 for a credit or Form 5329 for tax on the distribution.

You can adjust the allocation on the entry screen for the 1098-T and select "Expenses and Scholarships" in the Education section and select EDIT for the student to enter Room and Board.

Room and Board only is available if the 1099-Q is entered first.

@JeffDomo

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