Taxes on 1099-Q earnings ?

Forum|Forum|5 years ago
April 4, 2021
1 reply
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From what I read the earning on 529 are not taxable as long as it is used to pay for dependent college expense.

1099-Q form has my wife’s SS. We are filing jointly

We have our son added as dependent. We have 1098-T included

Our gross income makes us ineligible to get tuition credits. And our son does not have taxable earnings to report.

From reading this forum, I do not have to report 1099-Q. But have the paperwork handy to prove that the distributions made went to my son's college expense.

The question I have is if I enter 1099-Q and 1098-T in our Joint return. The Turbo tax software calculating that we owe tax if 1099-Q Earnings [Box 2] > 0

In this case 529 disbursements were used to pay for my sons college tuition and board.

What I entered in the software

Form 1099-Q [x]

Recipient [My Wife]

Student [My Son]

Box 1 (Gross Distribution): 3000

Box 2 (Earnings): 1000

Box 3 (Basis) : 2000

[x] State Program

Recipient is not Designated Beneficiary

Distribution Code 1

529 Plan

Hal_Al

Employee

Stick with your first decision: You do not have to report 1099-Q. So don't.

The most likely explanation is that, despite the fact that you are not eligible for a tuition credit, TurboTax has allocated some of the expenses for the credit.

One clarification. You say "From what I read the earning on 529 are not taxable as long as it is used to pay for dependent college expense".

"It" is the total distribution (box 1 of the 1099-Q), not just the earnings (box 2). So, in your example (box 1 is $3000), you would need $3000 of expenses not the $1000 in box 2.

avg2Author

Thanks for the reply. The entire 529 gross distribution (Box 1) is used for qualified college expense i.e tuition + on-campus room &board.

As I understand (Box 1) Gross Distribution = (Box 2) Earnings + (Box 3) Basis.

Turbo tax Deluxe software is indicating that I owe taxes if I enter any value for Earnings (Box 2) if the recipient is my Wife. If change the recipient to my son then the tax is not calculated.

The 529 1099-Q Form has my wife as recipient and son as beneficiary.

Hal_Al

Employee

@avg2 said "Turbo tax Deluxe software is indicating that I owe taxes if I enter any value for Earnings (Box 2) if the recipient is my Wife. If change the recipient to my son then the tax is not calculated".

You've entered something wrong or TurboTax has allocated some of the expenses for the credit. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use (or change it to zero). You may reach that screen sooner.

The reason no tax is calculated, if you change the recipient to your son, is that the 1099-Q no longer goes on your return, it goes on your son's return.

Since you know none of it is taxable, delete the 1099-Q. It is not required to be entered. 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.

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."