Q is for 1099-Q.
If you are the owner of a qualified tuition program (QTP) (like a section 529 plan or a Coverdell ESA), you should receive a federal form 1099-Q, Payments from Qualified Education Programs, when funds are withdrawn in order to pay qualified education expenses of the beneficiary.
The form 1099-Q will include the total of all withdrawals made during the year even if those funds are not taxable. Here’s what you need to look for:
- Box 1 (indicated by the red “a”) reports the total distributions or withdrawals for the year. It includes cash or in-kind payments like tuition credits or certificates, payment vouchers, tuition waivers, or other similar items.
- Box 2 (indicated by the blue “b”) reports the total income or earnings on the contributions to the plan. These are not taxable so long as the distributions or withdrawals are used for qualifying education expenses.
- Box 3 (indicated by the green “c”) reports the basis, or your original contributions to the account.
If the distribution equals the total of qualified education expenses, then none of the amounts in boxes 1-3 need to be reported on your tax return. If the distribution exceeds the total of qualified education expenses, then the earnings (box 2) will be reported on your income tax return at line 21.
Generally, qualified education expenses for purposes of the 1099-Q include tuition and fees; books, supplies, and equipment; expenses for special needs services in connection with enrollment or attendance; and expenses for room and board for students who are enrolled at least half-time (some limits apply).
Keep in mind that the tuition and fees deduction can also be claimed in the same year you use funds from the QTP, so long as you’re not double-dipping. Similarly, you can claim the American Opportunity Credit or the Lifetime Learning Credit in the same year as a distribution from the QTP. The key is to not claim the same expenses for both benefits.
