Form 1099-Q reports distributions from a qualified education program, such as a 529 plan or a Coverdell Education Savings Account (ESA). These accounts are designed to help pay for education expenses.
In most cases, the money withdrawn from the account is tax-free if it was used for qualified education expenses. While the distribution amount is shown in Box 1, only the earnings portion reported in Box 2 may be taxable.
Do I Need to Report Form 1099-Q on My Tax Return?
Not always.
Whether you need to report the distribution depends on how much was spent on qualified education expenses during the year.
Qualified education expenses generally include:
- Tuition and fees
- Required books and supplies
- Certain equipment required for enrollment
- Room and board for eligible students
If Qualified Expenses Equal the Distribution
If your qualified education expenses are equal to the amount in Box 1, the distribution is generally not taxable.
In this situation:
- You do not need to report the Form 1099-Q on your return.
- Keep the form with your tax records.
If Qualified Expenses Exceed the Distribution
If your qualified education expenses are more than the amount distributed:
- The distribution is generally not taxable.
- You do not need to report the Form 1099-Q.
However, you may still qualify for an education tax benefit. If you received Form 1098-T, you may be able to claim an education credit using the portion of expenses paid out-of-pocket.
If the Distribution Exceeds Qualified Expenses
If the amount in Box 1 is greater than your qualified education expenses, part of the distribution may be taxable.
Generally, only a portion of the earnings reported in Box 2 becomes taxable, not the entire distribution.
How Do I Report Form 1099-Q in the Program?
To enter a taxable Form 1099-Q distribution:
- Go to Federal
- Select Income (Select My Forms)
- Choose Less Common Income
- Select Payments From Qualified Education Programs (Form 1099-Q)
Enter:
- Gross distribution (Box 1)
- Earnings (Box 2)
- Qualified education expenses
The program will calculate the taxable portion, if any.
Two Ways to Handle a Form 1099-Q Distribution
Depending on your tax situation, you may choose one of two approaches.
Option 1: Exclude the Distribution From Income
If you used the 1099-Q funds to pay qualified education expenses, enter:
- The gross distribution
- The earnings amount
- Your qualified education expenses
The program will use the expenses to determine whether the income can be excluded from taxation.
Option 2: Maximize an Education Credit
In some situations, you may receive a larger tax benefit by using your education expenses to claim an education credit, such as the American Opportunity Credit or Lifetime Learning Credit.
If you choose this option:
- Enter the 1099-Q information without entering qualified expenses in the 1099-Q section.
- Claim the eligible expenses in the Education Credit section instead.
- The 1099-Q income may become taxable.
Important
You cannot use the same education expenses twice.
If you use expenses to make a 1099-Q distribution tax-free, you must reduce the expenses available for an education credit by that same amount.
How Do I Report a Coverdell ESA Distribution?
Coverdell ESA distributions are entered in the same section:
- Go to Federal
- Select Income (Select My Forms)
- Choose Less Common Income
- Select Payments From Qualified Education Programs (Form 1099-Q)
After entering the distribution and your qualified education expenses, the program will determine whether any earnings are taxable.
Coverdell ESA Basics
A Coverdell Education Savings Account (ESA) allows contributions to grow tax-free when used for qualified education expenses.
- Contributions are not tax-deductible.
- Earnings grow tax-free inside the account.
- Qualified distributions are generally tax-free.
Will a Coverdell ESA Distribution Affect My Tax Return?
If Expenses Equal the Distribution
Generally, none of the earnings are taxable.
If Expenses Exceed the Distribution
The excess expenses may be available for an education credit, subject to IRS rules and eligibility requirements.
If the Distribution Exceeds Expenses
Part of the earnings included in the distribution may be taxable.
The tax applies only to the taxable portion of the earnings, not the entire distribution amount.
What If I Received Multiple Forms 1099-Q?
If you received more than one Form 1099-Q during the year, combine the amounts from all forms before entering them in the program.
Before You File
Keep records of your tuition payments, fees, books, supplies, room and board expenses, and any Form 1098-T you received from your school. These records help determine whether your 1099-Q distribution is taxable and whether you qualify for valuable education tax credits.
Because education tax benefits can overlap, reviewing both the 1099-Q distribution rules and available education credits can help you receive the greatest tax benefit while avoiding double-counting your expenses.
Additional Information
For more information, see Publication 970 to figure the taxable amount, or to read about other tax benefits for education. Also see IRS Instructions for Form 1099-Q.