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Question

Taxable earnings on qualified tuition plan

Forum|Forum|6 years ago
June 6, 2019
3 replies
0 views

I've used $4,000 of qualified expenses to take the American Opportunity Credit for education. I paid for those expenses with distributions from a qualified tuition plan. I feel like there should be a partial income addition on Line 21 because part of the QTP earnings will now be taxable, but nothing shows up there. I took out enough QTP money to pay for the expenses. Any ideas on how I can fix this?

TurboTax Premier Online

Employee

If you took out enough money to pay for the expenses... then there is nothing for you to fix. The QTP earnings are considered to be taxable income, only if the distribution (distribution plus earnings) exceeds your qualifying education expenses. Otherwise, they are not taxable and you don't have to report any of the distribution as income on your tax return.

When going through 1099-Q data entries, we ask about those expenses and based on your answers, taxable amount will determined, if any.

Margaret, I have earnings above my expenses. The system isn't allowing me to move forward bc the recent SECURE Act says that perhaps my earnings are deductible if I have outstanding student loans. I do not, therefore, I know my earnings will be taxable and I'll have to pay the 10% penalty. Any idea when Turbo Tax will be ready for me to move forward? It's frustrating that there is no timeline mentioned. @MargaretL

It is frustrating, but the program will not move forward on this issue while the software is being updated.

You should receive an email when it's ready.

Thank you for your patience.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

Question: I have calculated my QTP Earnings Tax and Penalty. Where do I enter them within TurboTax?

Employee

If you are using desktop (download) TurboTax (TT), you can make entries (override) on the forms*.

With online TT, it has to be done in the interview.

*Some entries that seem like you should be able to enter on Form 1040 or Schedules 1 through 3 have to be entered on TurboTax's 1040 Worksheet.