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May 15, 2021
Question

My daughter is a phd student. She files her own taxes. I received a 1099Q for distributions from her 529 plan. Do I claim this on my taxes or does she?

  • May 15, 2021
  • 1 reply
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My daughter is the beneficiary and she used the money for qualified education expenses. The 1099 Q has my name on it and my social security number. When I enter the information from the 1099Q I end up getting taxed on the gains. Please help. Not sure how to fix this.

1 reply

Hal_Al
Employee
May 15, 2021

You claim it since the 1099-Q has your  name and social security number (you are the recipient).

 

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board 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. But, it will prepare a 1099-Q worksheet for your records.

You and your daughter would still have to do the math to see if there were enough expenses left over for her to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

 

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." 

_____________________________________________________________________________________

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). 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.

She maybe able to claim the tuition credit before you claim the 529 plan earnings exclusion. The educational expenses you claim for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. She cannot count the same tuition money, for the tuition credit,  that gets you an exclusion from the taxability of the earnings (interest) on the 529 plan. 

 

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 Lifetime Learning credit (grad students are not eligible for the more         generous AOTC

 =$3000 Can be used against the 1099-Q 

 

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

You have $1120 of taxable income  

 

**Alternatively; 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 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.

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." 

***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. Most people come out better having the scholarship taxable before the 529 earnings.