How do you enter the information from Form 1099-Q?

Forum|Forum|5 years ago
January 28, 2021
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I received Form 1099-Q for qualified expenses for my granddaughters. How do I enter the information on TurboTax?

RayW7

Form 1099-Q reports distributions and benefits from Coverdell education savings accounts and 529 plans. It's reported on the tax return of the person whose Social Security number is on the form.

Here's how to enter your 1099-Q in TurboTax:

Open or continue your return.
Select Federal and then Deductions & Credits.
Scroll down to the Education section under All tax breaks.
Select, Show more and select Start or Revisit next to ESA and 529 qualified tuition programs (Form 1099-Q).
Follow the screens to enter your info.

Note:

A 529 plan (aka qualified tuition plan or QTP) is operated by a state or educational institution with tax benefits and other incentives, making it easier to save for college, post-secondary training, and K–12 education expenses.

Formerly limited to higher education, 529 plan distributions can be used towards qualified K–12 expenses – up to $10,000 per student – in tax years 2018 through 2025.

You can set up a 529 plan for yourself or a designated beneficiary such as a child or grandchild. Earnings on 529 plans aren’t taxed by the federal government nor most states, as long as the distributions are used towards qualified education expenses.

Distributions from 529 plans are generally reported on Form 1099-Q.

cmr090649Author

After entering the information from Form 1099-Q why is there federal tax owing? It is a qualified education expense. The tax is for the earnings portion of the distribution.

Hal_Al

Employee

"The tax is for the earnings portion of the distribution."

You mean the taxable income amount is the same as the earnings portion? That usually indicates you haven't entered the educational expenses.

The interview is complicated. You have to carefully enter the expenses and answer the qualifying questions. That why I recommended that you not enter the 1099-Q at all, if you already know it's a qualified distribution.

If the student is not your dependent, the interview is usually a little easier. After entering the 1099-Q, several screens later, you will get a screen titled "Non-dependent student expenses". All expenses can be entered on this single screen. There are boxes for tuition, books, room & board, computers.

Hal_Al

Employee

You don't enter it on tax return or in TurboTax. 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."

So, you can just not report the 1099-Q, at all, 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 to claim the tuition credit. You (and/or the parents or student herself) 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. But, it will prepare a 1099-Q worksheet for your records..

* I assume the student is not your dependent, but is the dependent of her parents. If they plan to claim a tuition credit, they cannot use the same tuition expenses, that you use to claim the earnings exclusion on the 1099-Q. So, you have to coordinate with them. See separate reply for details.

Hal_Al

Employee

Qualified Tuition Plans (QTP 529 Plans)

It’s complicated.

For 529 plans, there is an “owner” (in this case the grandparent), and a “beneficiary” ( the student ). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

There needs to be some coordination between the parent (assuming the student is your dependent) and the recipient. You can and should claim the tuition credit before the grandparent (or student) claims the 529 plan earnings exclusion. The educational expenses they claim for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
Be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

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 (on the parent's return)

=$3000 Can be used against the 1099-Q (on the grandparent's return)

Box 1 of the 1099-Q is $5000

Box 2 is $600

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

60%x600= $360

The recipient has $240 of taxable income (600-360)

**Alternatively; you can just not report the 1099-Q, at all, if the 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. Again, 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. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

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.