Parent vs Dependent 529 Plan distribution reporting

Forum|Forum|3 years ago
February 27, 2023
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First time doing 529 Plan payments

My son got 1099-Q in his name for 529 Plan payments for his college expenses

My son got a 1098-T from his college showing total payments (including a small scholarship)

I (parent) got 1 1099-Q in my name since i paid for his books and his computer but reimbursed myself.

A late independent $1,500 scholarship was added after we received the 529 Plan reimburse payment.

The college sent my son a check for the $1,500 as a refund.

Now, I know that $1,500 is taxable (or at least the earnings related to the extra $1,500 that came from the 529 Plan)

My question, for simplicity's sake, can i just put all of if (both 1099Qs, and 1098T) on my return even though some are in his name, since he is my dependent? If not, how do i enter this on both (my son's and my) returns?

Note: we do not qualify for AOTC, so this does not need to be considered.

thank you in advance for any insight

Hal_Al

Employee

Q. Can I just put all of if (both 1099Qs, and 1098T) on my return even though some are in his name, since he is my dependent?

A. No. Since one of the 1099-Qs is in his name (he is the "recipient") it can only go on his return, if it goes anywhere.

You can just not report the 1099-Q(s), at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he 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, so nothing about the 1099-Q is filed with the IRS. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you 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."

Unless your student has more than $11,450 of other income, it is better to report the $1500 scholarship as income rather than the earnings related to the extra $1,500 that came from the 529 Plan. This is because taxable scholarship is treated as earned income in calculating a student's standard deduction, while taxable 529 earnings are unearned income. A dependent's standard deduction is his earned income + $400 ($1150 minimum, $12,950 max).

jenks54321Author

Thank you for the quick reply, but I am still a bit confused. Maybe some more specific detail would help clarify:

1098-T (Son=student) Box 1: 17,198 Box 5: 6,500 (1,500 of which is that extra scholarship that came late)

1099-Q (son=recipient) box1: 11,773 Box 2: 5,035 Box 3: 6,738

1099-Q (parent=recipient) box1: 3,476 Box 2: 1,514 Box 3: 1,962

Additional items that are in 1099Q that are not in 1098T (Computer: 2,693 and books: 357)

So 17,198(1098T)-6,500(1098T)+2,693(computer)+357(books)-11,773(1099Q)-3476(1099Q) = -1,500 (529 plan overpay)

KrisD15

Although it is true that the taxable portion of your son's 1099-Q will be reported and taxed on the student's tax return, entering all the forms on the parent's return will allow your program to make the calculations.

To use this function, first omit the student's 1099-Q, and enter all the education information, including your 1099-Q and the 1098-T.

After you get YOUR result (credit or tax) go back to the 1099-Q section and add the student's 1099-Q. Now YOUR program will tell you what to report on the student's return.

Most likely, in your situation, the program will suggest you take the American Opportunity Tax Credit and have the student claim 5,500 of his distribution.

Looking at your numbers, I think the best tax break would be to use 4,000 expenses for the credit leaving 5,500 that the student would need to claim, however you would also need to meet the other credit requirements, such as income limits.

As pointed out earlier, rather than the distribution, you could allocate a portion of the scholarships to the student, but you would need to do this manually by adjusting the numbers you enter from the 1098-T. The program may not make that distinction (Scholarship income versus 529 income) when reporting what the student needs to claim.