Form 1099-Q is provided to a taxpayer who received a distribution from a qualified tuition program (a 529 plan) or a Coverdell Educational Savings Account, or when funds are transferred between accounts. The form is provided to the taxpayer by the plan administrator or bank, and the information is also sent to the IRS.
Gross distributions reported in box 1 include both earnings (reported in box 2) and basis (reported in box 3). Withdrawals are not taxable and don't need to be reported on the federal income tax return if they are ...
- used to pay for qualified education expenses, or
- are transferred between trustees, or
- are rolled over into another qualified program for the same beneficiary within 60 days of the withdrawal.
Withdrawals that are considered taxable are included in Other Income on the federal tax return Schedule 1 Line 21, and the additional tax is reported on Form 5329. Additionally, if these funds are used to pay for qualified educational expenses, the tuition deduction and the education tax credits are not available for the same expenses.
Irrespective of whether a withdrawal is considered taxable or not, taxpayers should keep together copies of the qualified education expenses along with the Form 1099-Q for their 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 ProWeb, from the Federal Section:
- Income Menu – Enter Myself
- Other Income (Less Common Income) - Begin
- Payments from Qualified Education Programs Form 1099-Q - Begin
Input Payments from Education Program. The taxable amount will carry to Schedule 1 Line 21.
NOTE: This is a guide to entering Qualified Education Program Payments into the TaxSlayer ProWeb software. This is not intended as tax advice.