How do I enter the amount of the scholarship?

Forum|Forum|3 years ago
April 18, 2022
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I withdrew from a 529 the exact amount of a tuition scholarship - the student was the recipient. The Tuition and other qualified expenses were already paid by the 529 (to me, and I made the payments) This should be very clean - no 10% penalty to her, and the earnings on the 28K distribution amounted to $9996. Where do I enter the $9996? I entered the 1099Q entirely, but nowhere does it ask if she received a scholarship. Can I delete the 1099Q entries and enter the earnings portion directly in any other section? TT is not great with college exps and 529s, sadly. TIA.

Hal_Al

Employee

Q. Can I delete the 1099Q entries and enter the earnings portion directly in any other section?

A. No. Yes, you can get the taxable income on your return that way, but technically you have to also submit form 5329 to claim the scholarship exception to the penalty.

It's not clear if you are the recipient of the 1099-Q or the student is. I'm going to assume your name and SS# are on the 1099-Q. I'm going to further assume you not eligible for a tuition credit, because you income is too high.

You are right: "TT is not great with college exps and 529s, sadly". Here's quick workaround in TurboTax:

Enter the 1099-Q. When asked who the student is answer: someone else not listed here (lying to TurboTax to get it to do what you want does not constitute lying to the IRS). Enter the student's name when asked. A few screens later, you'll get one simple screen to enter expenses. Also enter the amount of the scholarship in the box "Tax-free assistance". This reports the earnings as taxable and claims the scholarship exception. You do not have to deal with the complicated Educational expenses and Scholarships (1098-T) section later.

SallyRandallAuthor

Thanks for your reply!

To your comment: It's not clear if you are the recipient of the 1099-Q or the student is. I'm going to assume your name and SS# are on the 1099-Q. I'm going to further assume you not eligible for a tuition credit, because you income is too high.

The student/my daughter was the recipient of the withdrawn funds - which were ONLY the amount of the scholarship. (I withdrew funds, payable to me, in the amount of the tuition and expenses and nothing extra.) Her name and social are on the 1099-Q. She is my dependent and I am not eligible for a tuition credit (all tuition was paid by the 529 anyway which I believe would preclude me from taking the credit?).

So I have answered to 'Who's shown as the Recipient on your 1099-Q' = "someone else not listed here" - then on the next screen it asks: 'Who's the student?" and I've selected the first bullet, which is the name of my daughter. Then it says "you don't need to enter this 1099Q info". and there is the button to add education expenses. I go there....

When I enter the expenses - I'm entering only the scholarship amount (because she did not pay any tuition, I did). Then the Federal tax due increases by about $3400. There's no way she's in a 30% tax bracket. Am I supposed to also enter the tuition paid? IF I do that, then the tuition paid will exceed the amount of the 529 withdrawal in her name. I'm also anticipating that I will have a question on how to enter the earnings portion of this withdrawal. Am I on the right track?

Hal_Al

Employee

Q. " I am not eligible for a tuition credit (all tuition was paid by the 529 anyway which I believe would preclude me from taking the credit?"

A. No. That's not true. "All tuition was paid by the 529 only means you can not claim the same tuition expenses for both the credit and the tax free earnings of the 529. But you may select which ever works best for you, and that is almost always the tuition credit.

Q. Am I on the right track?

A. No. You are not locked to using the certain funds for certain expense. You may allocate them for your best advantage.

Let's start over. The quick workaround previously described doesn't work because you don't meet the assumptions. Provide the following info for more specific help:

Are you the student or parent.
Is the student the parent's dependent.
Box 1 of the 1098-T
box 5 of the 1098-T
Any other scholarships not shown in box 5
Does box 5 include any of the 529/ESA plan payments (it should not)
Is any of the Scholarship restricted; i.e. it must be used for tuition
Box 1 of the 1099-Q
Box 2 of the 1099-Q
Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
Room & board paid. If student lives off campus, what is school's R&B charge.
Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
How much taxable income does the student have, from what sources
Are you trying to claim the tuition credit (Is your income less than $90K ($180K Married jointly))
Is the student an undergrad or grad student?