Penalized for having "educator expenses" while being recipient of 529 distribution pass-through??

Forum|Forum|3 years ago
January 31, 2023
2 replies
0 views

Hi. I'm an educator and have qualified educator expenses last year. I am also the parent of full-time college student. We withdrew 529funds to pay for my kid's qualified expenses last year. My name is listed as the "Recipient's Name" on the 1099-Q we received, and box 6 of the 1099-Q form is checked to indicate that the recipient is not the designated beneficiary. When i fill out the 1040 "Educator Expense Worksheet" (Schedule 1/Line 10), I report my " qualified educator expenses" for being a teacher, BUT, those expenses are negated by the "non-taxable qualified tuition program distribution" I have to report for the 529 distribution. Even though I can prove that 100% of that 529 money went directly to my kid's qualified college expenses, I'm basically losing a tax credit because I'm a pass-through (in name-only) for 529 money. Is this correct?? See also https://www.irs.gov/taxtopics/tc458 for reference. Help to understand this is greatly appreciated!

Hal_Al

Employee

This was news to me. But, it appears to be true. The rationale escapes me. It would not appear to apply if the student, rather than the parent, is the recipient.

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, if it even gets reported. The recipient's name & SS# will be on the 1099-Q.

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."

gowers98

I had the same problem. Did you find a way to fix this issue?

anthonymfalconeAuthor

Yes. Since form 1099-Q instructions to the recipient states "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return," one can conclude that the taxability of this specific distribution does not need to be reported and so that is how to proceed.