1099Q issued to daughter but parents claim educ exp- where enter daughter 1099Q?

[Taxadvisor VA]

TP's daughter is his dependent as she is a College student. All education expenses are entered on his return. Here comes a 1099Q - VA529 College savings form in the daughters name.
Does this F1099Q also get entered on TP return? ______________________ I'm thinking yes!

Thanks,

Taxadvisor VA

[Roland Slugg]

In most cases the information reported on form 1099-Q (as well as on form 1098-T, Tuition Statement) doesn't have to be reported on anyone's tax return. The information is more advisory in nature. One time when information on a form 1099-Q may have to be reported on a return is when there is income reported thereon, and the funds paid out by the fund were not used for qualified education purposes.

[Taxadvisor VA]

1098T & 1099Q entering

In most cases the information reported on form 1099-Q (as well as on form 1098-T, Tuition Statement) doesn't have to be reported on anyone's tax return. The information is more advisory in nature. One time when information on a form 1099-Q may have to be reported on a return is when there is income reported thereon, and the funds paid out by the fund were not used for qualified education purposes.

Thank you Roland for responding. From my seat, I do think the information needs to be entered to substantiate the education credit deductions. I have been handling it this way for years. I do get that the IRS should have the forms as well to validate the deductions claimed. As far as the 1099Q, there is income reported on the form which has to be added to the recipient in this case the daughter.

Thank you for taking the time to respond.

Taxadvisor VA

[FEDUKE404]

Dealing with 529 plan distributions

Unfortunately, it is not quite that simple.

First, you have to deal with the "recipient" shown on the Form 1099-Q and the beneficiary shown on the 529 plan. It can be "husband," "wife," or "someone else."

It is a reasonably (hopefully) simple task to "burn up" the distributions by using qualifying 529 expenses (which differ greatly from qualifying education expenses). Anything that cannot be shown as spent on qualifying expenses of the 529 type ends up on line 21 of Form 1040 as income to the "recipient" of the Form 1099-Q. . .again not necessarily (and probably not!) the student.

From there, you move on to calculating the normal (is there such a thing?) education expenses for the student/dependent. Best case scenario there will be some education credits to fall out. Worst case scenario, there may be some taxable scholarship income.

Because there are different expenses that can be used for 529 plans vs tax credits, things can get confusing.

Suggest you look around for a Form 1099-Q input form on your tax software, and then let the program Q&A walk you through ALL of the steps for the student. Some helpful summary worksheets should also be generated. Hopefully you will not encounter any "AQEE" or similar minefields.

I'm still working on a 2015 return that is an "education" disaster. 529 plan funds were withdrawn. . .but too much. (Income for parents) Students are receiving scholarships, and one includes room/board. (Income for student) There may yet be some education credits to fall out, but everything is interrelated. BTW: Did I mention "kiddie tax" has also become a factor ?? [We will defer all comments re Forms 1098-T also. . .]

Oh well. Good luck. Just be very careful of any "shortcuts" you may take working your way through the maze. (Also, the Commonwealth may have some "special" tax treatments in store for you? ? ?)

FE

[nwtaxlady]

Read Publication 970

You need to read Pub 970 tax benifits for education. When you or child have a 1099-Q you can't use the same expenses for an education credit that is also used from funds taken out of a 529 plan. You CANNOT double dip.
There is a formula and instructions how to coordinate the 2 on the tax return in Pub 970.

[FEDUKE404]

Relation between education expenses and QTP distribution

You need to read Pub 970 tax benifits for education. When you or child have a 1099-Q you can't use the same expenses for an education credit that is also used from funds taken out of a 529 plan. You CANNOT double dip.
There is a formula and instructions how to coordinate the 2 on the tax return in Pub 970.

Thank you for your cogent advice.

In the case I referenced, there was no double-dipping per your perspective.

The allowable expenses for the QTP were taken into account in reference to the information shown on the Form 1099-Q. I'm sure you know the expenses that can be used to offset potential taxable income from QTP distributions are quite different from those that can be used as qualifying expenses for education tax credits. (Costs of room/board, for example)

There was some taxable income remaining from the Form 1099-Q distribution (potentially taxable QTP distributions exceeded the allowable QTP expenses) and that income was properly reported as taxable on line 21 of the student's (beneficiary's) tax returns.

OTOH, the parents then calculated the allowable qualifying expenses (from Form 1098-T et al) and were able to show a small AOC credit for both of their dependents.

I ran the full set of information through two separate sets of tax software, both of which had an excellent worksheet. In the simplest of terms, the "bottom line" stated something to the effect that amount A can be used for education credits ***and*** amount B must be reported as taxable income from the QTP. The same detailed worksheets also determined the amount, if any, of the taxable QTP distribution that would also be subject to the 10% penalty for excessive withdrawals (there was none).

Perhaps you are confused by the fact that there IS an adjustment that must be made to the potentially taxable amount of the QTP distribution **IF** a tax credit is used. This variable amount does change the amount of "income" from the QTP distribution. But the value of the tax credit to the parents more than offset the slight increase in taxable QTP income the student/beneficiary, who is in a very low tax bracket, faced. It was an easy choice.

SUMMARY: I did review, extensively, the relevant IRS publication and I am very content the "benifits" and related taxable income from the QTP distribution have been calculated correctly for this client.

In the off-season from tax work you may wish, on your own, to consider a bit more detailed review of the complexities of this topic. . .

FE

[nwtaxlady]

FE, I am not confused. Iam aware of the adjustment. I just wanted the poster to be aware and point them to the publication that covers this. I was just trying to help.

[mactoolsix]

An interesting thing about 529 plans:
You can avoid the penalty if you get a scholarship.
There are a few special exceptions to the 10% penalty rule, including when the beneficiary becomes incapacitated, attends a U.S. Military Academy or gets a scholarship. In the case of a scholarship, non-qualified withdrawals up to the amount of the tax-free scholarship can be taken out penalty-free, but you'll have to pay income tax on the earnings.

Just thought I'd throw that in . . . .
Mike