How Can I Enter Form 1099-Q - Payments from Qualified Education Programs in ProWeb?
Form 1099-Q is sent to a taxpayer when they receive a distribution that is from either a qualified tuition program (QTP) under section 529 or a Coverdell Education Savings Account (CESA). The taxpayer decides whether or not the distribution is subject to tax. Nothing is to be reported on a taxpayer’s federal income if they spend the entire amount distributed for qualified education expenses.
Earnings in Box 2 and Basis in Box 3 are included in the Gross Distributions from either a 529 or a Coverdell ESA in Box 1. Normally, the distribution is not subject to tax if;
It was transferred in between trustees
It was utilized in paying qualified education expenses
Within 60 days, it was rolled over into another qualified program.
Excess distribution will be included on Form 1040 as Other Income. Additional Tax may also be charged on the amount included in the income that is reported on Form 5329.
Form 1099-Q Box 6 Distribution Codes (if reported)
|
Distribution Code |
Description |
|
|
1. |
Distributions |
Descriptions inclusive of transfers made to the beneficiary as well as every direct payment made to a qualified educational facility. It is worth noting that a withdrawal with codes 2 or 3 are not regarded as a distribution. |
|
2. |
Excess Contributions and taxable income in the present tax year |
Withdrawals of the excess CESA income and contribution together with the taxable income in the same year. |
|
3. |
Excess contributions and taxable income in the previous year |
Withdrawals of excess CESA income and contributions together with the taxable income in the previous year |
|
4. |
Disability |
The Distributions that were made after the beneficiary was disabled. |
|
5. |
Death |
Payments made to the decedent of a beneficiary including an estate. |
|
6. |
Prohibited transaction |
Prohibited transactions. Check out sections 408(e)(2) and 408(e)(4) for related rules applied to a CESA. |
When is the Income in Box 2 Subject to Tax?
- When the distributed funds were never spent for qualified education expenses
- When the benefiting student was replaced by a person not in the same family
What are Qualified Education Expenses?
Qualified Education Expenses refers to the expenses needed for a selected beneficiary to get enrolment or study at an eligible educational institution, the student’s enrollment period being at least half-time. The institutions referred to are inclusive of primary, secondary and post-secondary. Expenses include tuition, fees, books, room and board, computer equipment among other things. More details on expenses that are considered as Coverdell ESA and a QTP are contained in Publication 970.
What are Adjusted Qualified Education Expenses?
For a Coverdell ESA, Adjusted Qualified Education Expenses refer to the qualified education expenses minus:
- Expenses settled by educational assistance that is tax free. For instance, scholarships and grants.
- Expenses that are deducted on Schedule 1, C or F
- American Opportunity Credit or Lifetime Learning Credit based expenses
For a QTP, it refers to the qualified education expenses that lacks the educational assistance that is tax free.
How is the taxable portion calculated?
(Adjusted Qualified Educational Expenses/Box 1 Distribution x Box 2 Earnings) subtracted from Box 2 Earnings.
To enter Qualified Education Program Payments into the Taxx Savage ProWeb:
- Go to the Federal Section of a tax return
- Proceed to the Income section
- Select Less Common Income
- Then Payments from Qualified Education Programs - For a MFJ return, check whether the 1099-Q belongs to the taxpayer or their spouse then enter on the required line for Box 1 and 2 amounts together with the adjusted qualified education expenses.
Note: This is not Tax Advice. It is a guide on how to enter qualified education program payments into the Taxx Savage program.
Additional Information: