Help with reporting 1098T and 1099Q

Forum|Forum|6 years ago
February 11, 2020
2 replies
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I apologize for having to ask this question, but I cannot find the answer in the forums to my specific questions. My daughter is a full-time student and only earned about $2200 last summer as a waitress. I am the owner of a 529 where she is the beneficiary. All withdrawals from that account have been for qualified expenses (tuition, room & board and a laptop). Except for the laptop, all payments from the 529 have gone straight to the university so a 1099Q was issued in her name. I received a 1099Q for the withdrawal for the laptop since I paid for it and reimbursed myself. My daughter is also a scholarship recipient, which only covers tuition (no room and board), and she received a 1098T. Since she is my dependent, I reported her 1098T and my 1099Q on my return. When I report her 1099Q in her return, TurboTax shows that my daughter owes $1600 in taxes for it. I have twice gone through the full interview for the education section for both my return and for hers and nothing changes.

One bit of information that I believe might be causing this problem that also might help in your response is that I actually made 3 tuition/room & board withdrawals in 2019 that might not reconcile with the scholarship amount on the 1908T. I paid for the Spring, 2019 semester on January 3, 2019; I paid for 2019 summer classes and the Fall, 2019 semester on August 13, 2019; I paid for the Spring, 2020 semester on December 18, 2019. When I add the total in box 1 on her 1099Q to the total in box 1 on my 1099Q, the amount is exactly what is shown as all YTD withdrawals on my 529 statement for 2019. So could 3 withdrawals for 3 semesters (reported on her 1099Q) against 2 semesters worth of scholarship (reported on her 1098T) be why the calculations show that taxes are owed by my daughter? If so, how do I rectify this? I can't find any worksheets that help correct this problem.

Otherwise, here are other questions if have:

1. If all withdrawals were made for qualified educational expenses as listed above, should any taxes be owed for withdrawals?

2. If no taxes should be owed, do I have to report her 1099Q at all? I have read in some replies that as long as I have good records that show all withdrawals match all qualified expenses, I don't need to even report a 1099Q.

3. If taxes are owed this year, how do I need to utilize the 529 in the future to avoid taxes being owed for qualified educational expenses?

Thanks in advance for your help!

mglauner

First of all, the Box 5 reporting Grants/Scholarships on the 1098-T contains no info about your 529 withdrawals.

If Box 1 is larger than Box 5, you qualify for an Education Credit.

You don't need to enter the 1099-Q on your return. Your daughter will enter it on her return (if she is required to file a return) and be taxed on any excess distribution.

If she is not required to file a return, then it doesn't get reported anywhere; just keep it for your records.

As long as 1099-Q funds were used for Qualified Education Expenses, it is not taxable.

Click this link for more detailed info on the 1099-Q.

tpage70Author

Box 1 on my daughter's 1098T is larger than box 5. Box 1 on her 1098T is also larger than box 1 on the 1099Q reported for her. This should indicate the withdrawals did not exceed what was paid out in education expenses, correct? If that is correct, it is my understanding that no taxes should be due at all. Yet when I include the 1099Q on her return, she is shown to owe taxes on those withdrawals. This issue did not occur last year when I completed returns for myself and for my daughter.

I am completing a return for my daughter since she had a summer job in 2019 and received a W2, so I assume she is required to file a return. If I am incorrect in that, please let me know. Because her income level was very low, TurboTax is calculating a small refund for her. That is until I enter the 1099Q. She goes from a refund of approximately $130 to a tax payment of $1600 and she only earned $2200 in her summer job.

I did read the information from your link on 1099Q reporting. My daughter's situation isn't really addressed in the article, though. I don't understand why TT is calculating a tax payment for her when the amounts paid to her school for tuition and related expenses exceed the gross distribution on her 1099Q. This statement from that article makes me think I don't need to report the 1099Q on her return: "For most qualified education program beneficiaries, the amounts reported on the 1099-Q aren’t reported on a tax return." Am I correct in this? If not, how do I report it without causing a tax payment due on her behalf?

SusanY1

It sounds like Form 1099-Q is entered into TurboTax for her but no education expenses are also entered to offset it, which is why it looks like taxable income to TurboTax.

Since you know that she had more than enough qualifying expenses to offset the distribution, the easiest and best way to handle this is to remove Form 1099-Q from TurboTax. The IRS does not require that this form be entered on any tax return unless there is a taxable distribution to report.

For her Form W-2 she may not be required to file depending on the amount of her total income, but since she is getting a refund she should file so that the money is returned to her.

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Hal_Al

Employee

You found the problem but you also found the solution. The problem is: it's complicated. The solution is just don't report the 1099-Q .

Q. 1. If all withdrawals were made for qualified educational expenses as listed above, should any taxes be owed for withdrawals?

A. 1. No.

Q. 2.Do I have to report her 1099Q at all?

A. No. If your student-beneficiary has sufficient educational expenses, including room & board (even if she 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. It will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

That said, you may want to pay a little tax on the 529 distribution in order to claim a more generous tuition credit.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)

-$3000 paid by tax free scholarship

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)