Question

1098T and 1099Q for graduate student

Forum|Forum|2 years ago
February 26, 2024
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Here is the situation. My daughter is in graduate school. She attends part time has an internship and a part time job where she made 37k last year. She lived at home and it's twenty three years old and is no longer considered a dependent on mybtax return...which excludes me from the lifetime learning credit.

I was advised not even to enter her 1099Q and T on HER form based on some things I read in another forum topic. But for the heck of it I input them.

Prior to input she was getting back almost a thousand dollars refund - federal. At first prompted me to enter the 1099Q information. It essentially showed 15k in box one gross distribution 3k in earnings and 12k as the basis. It then prompted me for the 1098T information which shows in box one payments receive for qualified tuition 15K. Somehow turbotax reduced her federal refund almost four hundred dollars and the state went up too.

My understanding is 529 plans grow tax-free so long as I'm using them for qualified tuition ... and there should be no taxable consequence. So why the heck is turbo tax somehow calculating a taxable consequence?

Now I'm at a loss as to whether I need to input this or not. Or what is going on.

TurboTax Home & Biz Windows

SusanY1

Can you clarify for us if there was anything in Box 5 (scholarships/grants) on your daughter's 1098-T?

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C

confusedrfAuthor

Nothing in box 5.

It gets even weirder. I went back and had it walk me through everything on the education area. And this time a new section popped up, which asked some questions about her school and status... if she ever had , any credits before..... I answered no she had not got credits before on her tax return. FYI..I have gotten one form of credit or another for the past 4-5 years but this she does not meet the dependent criteria...so the q/t do not appear on my return for the first time.

A screen popped up suggesting to allocate 10k of what should be non-taxable 529 distributions as taxable in order to get a lifetime learning credit.

So we went from about nine hundred dollars and change before entering any of the t or q information.... To that being reduced to six hundred dollars and change after entering the t and q even though they should be tax free distributions.... To her now getting a twenty six hundred dollar refund with the lifetime learning credit.

I think it's somehow implying that the distribution should be tax-free because it's from a five twenty nine plan , but if instead , she pays taxes on that 10k she might get a better credit with the lifetime learning.

I don't really understand all. This somehow feels like a double dip to me but i'm not sure. Further, when I did the state review for Pennsylvania... It asked questions and prompted me and I entered. She had 15K in education expenses and A15K distribution. And that lowered her taxable income back down to the seventeen dollars she originally owed.

Very confusing... Her tuition was paid with money that grew tax-free from a 529 plan. But somehow turbotax calculates her paying tax on it and gives her an extra two thousand back? The numbers don't seem to make sense though. If a refund was $600 before the 10000 she must now pay tax for the 10000. I would think that would lower the refund from six hundred dollars 20 or less than zero so How could the refund jump up to twenty six hundred dollars.

Ugh.

AmyC

Employee

The 1099-Q should not be entered for two reasons. One, the IRS does not want you to, IRS Publication 970, Tax Benefits for Education states:

If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form. Tuition paid for the first 3 months of the next year also qualify, see page 12, What Expenses Qualify, and page 52 for qualified distributions.

Two, the program holds apart $10,000 for LLC as hostage to manipulate calculations based on the taxable 1099-Q income.

Delete the 1099-Q so the IRS and program can function effectively. As an adult, claiming her own exemption in graduate school, she may qualify for the LLC.

The $15,000 of 1099-Q largely went to room and board. The 1098-T of $15,000 minus the little bit left of the Q after room and board leaves room to claim the LLC and probably get the full amount of her tax liability up to $2,000 covered.

Remember, living at home does not mean there is no room and board. Use the off-campus guide provided by her college to determine the allowable costs for living off campus. See 529 for Room and Board.

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