Form 1099-Q is an IRS form for an individual that receives distributions from a Qualified Education Program. This form is used to prepare both the federal and state tax returns. Gross distributions from a qualified tuition program (529 plan) or from a Coverdell Education Savings Account reported in Box 1 include both earnings (reported in box 2) and basis (reported in box 3). The distribution would normally not be taxable if you used it to pay for qualified education expenses, made a transfer between trustees, or rolled over the distribution into another qualified program within 60 days. Otherwise you may have to include it in Other Income on Form 1040. There may also be an additional tax on the amount you have to include in income. The additional tax would be reported on Form 5329.
Form 1099-Q Distribution Codes
|Distribution Codes||Use this code for...|
|1||Distributions||Distributions (including transfers) to the recipient and any direct payments to a qualified educational facility. However, use code 2 or 3 for withdrawals of excess contributions.|
|2||Excess contributions plus earnings taxable in the current tax year||Withdrawals of excess Coverdell ESA contributions and earnings unless code 3 applies.|
|3||Excess contributions plus earnings taxable in the prior year||Withdrawals of excess contributions from a Coverdell ESA. The earnings are taxable in the year in which the excess contributions were made.|
|4||Disability||Distributions you made after the recipient was disabled (see section 72(m)(7)).|
|5||Death||Payments to a decedent's beneficiary, including an estate.|
|6||Prohibited transaction||Prohibited transactions. See sections 408(e)(2) and 408(e)(4) for similar rules that apply to a Coverdell ESA.|
How Do I Determine Taxable Earnings?
If you used all of the funds distributed from your account for qualified education expenses, you do not need to report anything on your federal income tax return. As long as your distribution was spent entirely for education expenses, the IRS will generally not tax the earnings. However, it is advised that you keep your Form 1099-Q and copies of your qualified education expenses for your records.
When Would the Earnings In Box 2 Be Taxable?
- The distributed funds were not used for qualified education expenses.
- The student beneficiary was changed to someone who was not an eligible family member of the original student beneficiary.
To enter Qualified Education Program Payments in TaxSlayer Pro, from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Other Income (W-2G, 2555)
- Qualified Education Program Payments (1099-Q)
- Input Payments from Education Program (Amounts will show on Form 1040, Line 21)
Note: This is a guide to entering Qualified Education Program Payments into the TaxSlayer Pro program. This is not intended as tax advice.