Distributions from qualified education programs are reported on Form 1099-Q Payments From Qualified Education Programs (Under Sections 529 and 530). The taxable amount of any distributed earnings is calculated automatically in TaxAct®.
To enter Form 1099-Q data in your TaxAct return:
Distributions from qualified tuition programs (QTPs) or Coverdell education savings accounts (ESAs) are tax free if the money is used to pay the beneficiary's qualified education expenses. However, if the beneficiary's total distributions exceed his or her adjusted qualified education expenses, then part of the distribution will be taxable. Only the amount of distributed earnings is ever subject to tax. You never pay tax on the basis (the amount of money you invested in the plan).
Adjusted qualified education expenses (AQEE) are the total qualified expenses reduced by any tax-free education assistance. If an education credit or deduction is claimed for the student, then the total expenses must also be reduced by the amount of expenses taken into account in determining the credit or deduction. Qualified expenses include tuition, fees, books, supplies, and equipment required for enrollment at an eligible school; expenses for room and board if the student is enrolled at least half-time; expenses for special needs services; and qualified elementary and secondary expenses (for ESA distributions only).
Example. Burt had $7,000 in total qualified expenses. His parents claimed an American Opportunity Credit based on $4,000 of qualified expenses. Burt has $3,000 of AQEE, which is the $7,000 total qualified expenses reduced by the $4,000 used to claim a credit.
All of the beneficiary's distributions must be totaled before being compared to the AQEE. This is true even if the distributions are made to different recipients.
Example. Burtha is the beneficiary of two QTP accounts. She received a check directly from the QTP account that her parents set up. Her grandparents also received a check from the account they set up. Burtha would receive a 1099-Q showing the distribution made to her, and her grandparents would receive a 1099-Q showing the distribution made to them. Both distributions need to be totaled before being compared to Burtha's AQEE.
TaxAct automatically totals distributions entered in the return. If the student was the beneficiary of any distribution not entered in the return, TaxAct will prompt you to enter this amount after you have entered your 1099-Q information.
Since the calculation of taxable earnings is made separately for QTP and ESA distributions, the distributions for each type of program must be totaled separately. That is, all of the beneficiary's QTP distributions are totaled and all of the beneficiary's ESA distributions are totaled.
TaxAct calculates the AQEE and determines if any part of the distributed earnings must be included in income. The calculation is made separately for QTP and ESA distributions.
The recipient listed on the 1099-Q enters the form in his or her return and therefore should report any taxable income. The beneficiary is listed as the recipient of a QTP distribution when the distribution is made (1) directly to the beneficiary, or (2) to an eligible school for the benefit of the beneficiary. Otherwise, the account owner is listed as the recipient of a QTP distribution. The beneficiary should always be listed as the recipient of an ESA distribution.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.