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The 1099-Q info I entered for my son's 529 Plan is being taxed on my return, which I believe is incorrect?

Forum|Forum|3 years ago
February 23, 2023
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My son received the 1098-T, which he entered on his tax return, Box 1 being $6434. He was given the American Opp Credit, for $2500. On my return (my son is not a dependent on), I entered the 1099-Q - Box 1 Gross Distribution of $3500, Box 2 Earnings of $276.48 and Box 3 Basis of $3223.52; I also indicated in TurboTax the info regarding the checked 'the recipient is not the designated beneficiary' (the 1099-Q Recipient is me). After I entered the 1099-Q, TurboTax recalculated my Fed & VA taxes and they both reflected that I owed taxes. I was under the impression the 529 I have (my son as the beneficiary) would not be taxed. Can someone help me understand why I was, and on what amount was I taxed? I've seen posts that say don't include the 1099-Q b/c it doesn't always calculate correctly. I'm not sure what's right to do here...

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Best answer by Hal_Al

If your son used $4000 of tuition (the amount needed to get $2500 AOC), then you can only use $2434 (6434 - 4000 =$2434) to claim the 529 distribution to be tax free. But, if you had other expenses, room and board, books, computer, totaling more than $3500 (the 529 distribution amount). But you have to enter those expenses. Furthermore, there's a big flaw in TurboTax. It sometimes assumes that $10,000 tuition was used for the tuition credit, greatly reducing the amount available for the 1099-Q.

Better yet, what you heard is correct, you are not required to enter the 1099-Q.

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. 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 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."

S

ShirlynW

TurboTax handles your situation. If the 1099-Q was not for yourself, your spouse or your dependent, you would select "Someone else not listed here."

Here are the steps enter the 1099-Q:

Open TurboTax.
In the search box in the top right, enter "1099-Q"
Click in the "jump to" link.
On the screen, "Form 1099-Q Summary", delete the 1099-Q entry.
Add a 1099-Q.
The next screen, "Who's shown as the Recipient on your 1099-Q" select "Someone else not listed here." ( Your son's name and social security is listed ).
Continue
The screen, "Who's the student?", select "someone not listed here."
Continue
This screen below will appear.

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J

judiemoonAuthor

Thank you, I went back and did as you suggested, and got the Great News! message, and no tax amount due was then calculated. Please be aware, however, that the 'Who's Shown as the Recipient on your 1099-Q' question TurboTax asks, MY NAME IS THE RECIPIENT ON THE 1099-Q. Not my son's, who's not be claimed as my dependent in TurboTax, nor Someone Else Not Listed Here. So, the instruction that TurboTax gives as to who to select, 'myself' or 'someone else not listed here' - are not the correct instructions in the TurboTax program, when one is in my situation. And, there is no help hyperlink to make sense of how to select a different answer than regarding what the question asks. Grateful for your time and help, to get me unstuck!

Hal_AlAnswer

Employee

If your son used $4000 of tuition (the amount needed to get $2500 AOC), then you can only use $2434 (6434 - 4000 =$2434) to claim the 529 distribution to be tax free. But, if you had other expenses, room and board, books, computer, totaling more than $3500 (the 529 distribution amount). But you have to enter those expenses. Furthermore, there's a big flaw in TurboTax. It sometimes assumes that $10,000 tuition was used for the tuition credit, greatly reducing the amount available for the 1099-Q.

Better yet, what you heard is correct, you are not required to enter the 1099-Q.

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. 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 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."