Why is Qualified Tuition Program(QTP) computation of taxable distribution amount wrong?

Forum|Forum|7 years ago
June 5, 2019
11 replies
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In the QTP Contribution of Taxable Distributions section of the 1099-Q, lines 3-7, TurboTax computes the taxable earnings portion of your QTP distribution, but it doesn't match the true taxable earnings.

For example, $23,000 distributed, $20,000 education expenses. Leaves $3,000 taxable. I know that the taxable earnings on this $3,000 distribution was $1,111.93 because I have it on the ScholarShare (CA) statement.

However, TT does it's own computation on lines 3-7 which yields a slightly higher $1,128 taxable earnings.

Is there any way to override this computation and tell TT what the taxable amount is? I know it is pro-rating, but that actually produced an incorrect amount. Bug or works as intended? Because there are so many variables? Could the ask a question? "You have $3000 of excess distribution. Do you want to enter the basis or have TT perform the computation?"

TurboTax Deluxe Windows

Best answer by Hal_Al

Answered in the comments

Hal_Al

Employee

What is in boxes 1 & 2 of your 1099-Q? What are you actual education expenses? Then what are your adjusted  education expenses after allocating some expenses to the tuition credit.

The statement " $23,000 distributed, $20,000 education expenses.  Leaves $3,000 taxable" is not correct. You need to know the  box 2 amount, in order to calculate the taxable amount
Here's an example of how the calculation works:
Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
  $10,000 in educational expenses(including room & board)
   -$3000 paid by tax free scholarship
   -$4000 used to claim the American Opportunity credit
=$3000 Can be used against the 1099-Q

Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)

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dag14Author

Employee

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dag14Author

Employee

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dag14Author

Employee

I should have said $3000 in excess distributions.

Example:
  $20000 education expense
  $0 scholarship
  $0  Amer Opp credit
  = $20000 to be used against the 1099-Q

Hal_Al

Employee

You haven't said how much was in box 2 (earnings) on the 1099-Q.
20,000/23,000 = 0.87 87% of the box 2 amount is tax free, meaning 13% is taxable.

A side issue is why aren't you claiming the Amer Opp credit?

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dag14Author

Employee

Box 1 of 1099-Q is $23000
Box 2 is $8900

Hal_Al

Employee

20,000/23000 =0.8696. 87% of $8900 is tax free and 13%is taxable. 0.13 x 8900 = $1157. That's close enough to both 1,111.93 and $1,128 to say the only difference is in rounding.

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dag14Author

Employee

However, I took the $3000 distribution in a single 529 saving plan transaction and the earnings portion was $1140 as documented in the 529 paperwork. Can I force TT to be accurate and match the 529 documentation. I don't think $17 is rounding. It's giving money away.

Hal_Al

Employee

The $17 is only the difference in the taxable income, not the tax you pay. 22% x $17 = $4.

But , yes. Since you have desktop software (not online), you have access to the forms and worksheets. Use override (right click on the line or box you want to change) to change anything. Overrides on the actual forms (but not work sheets) will prevent e-filing.

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dag14Author

Employee

Agreed. Thank you for great answers. Sorry my answers were multiple, TT kept flagging my answers and giving errors on my posts. It thought I was entering phone numbers, account number or SS numbers.