Form 1099-Q - Taxable Amount of Earnings

Distributions from qualified education programs are reported on Form 1099-Q. The taxable amount of any distributed earnings is calculated automatically in TaxAct®. 

To enter Form 1099-Q data in your TaxAct return:

  1. From within your TaxAct return (Online or Desktop) click Federal. On smaller devices, click in the upper left-hand corner, then Federal.
  2. Click Education under Federal Quick Q&A Topics to expand that category, then click Education program payments (Form 1099-Q) (scroll down if necessary).
  3. Click +Add Form 1099-Q to create a new copy of the form or Review to modify an existing form
  4. The program will proceed with the interview questions for you to enter or review the appropriate information

Taxable Earnings on Education Program Distributions

Distributions from qualified tuition programs (QTPs) or Coverdell education savings accounts (ESAs) are tax free if the money is used to pay the beneficiary's qualified education expenses. However, if the beneficiary's total distributions exceed his or her adjusted qualified education expenses, then part of the distribution will be taxable. Only the amount of distributed earnings is ever subject to tax. You never pay tax on the basis (the amount of money you invested in the plan).

How are adjusted qualified education expenses determined?

Adjusted qualified education expenses (AQEE) are the total qualified expenses reduced by any tax-free education assistance. If an education credit or deduction is claimed for the student, then the total expenses must also be reduced by the amount of expenses taken into account in determining the credit or deduction. Qualified expenses include tuition, fees, books, supplies, and equipment required for enrollment at an eligible school; expenses for room and board if the student is enrolled at least half-time; expenses for special needs services; and qualified elementary and secondary expenses (for ESA distributions only).

Example. Burt had $7,000 in total qualified expenses. His parents claimed an American Opportunity Credit based on $4,000 of qualified expenses. Burt has $3,000 of AQEE, which is the $7,000 total qualified expenses reduced by the $4,000 used to claim a credit.

How are total distributions determined?

All of the beneficiary's distributions must be totaled before being compared to the AQEE. This is true even if the distributions are made to different recipients.

Example. Burtha is the beneficiary of two QTP accounts. She received a check directly from the QTP account that her parents set up. Her grandparents also received a check from the account they set up. Burtha would receive a 1099-Q showing the distribution made to her, and her grandparents would receive a 1099-Q showing the distribution made to them. Both distributions need to be totaled before being compared to Burtha's AQEE.

TaxAct automatically totals distributions entered in the return. If the student was the beneficiary of any distribution not entered in the return, TaxAct will prompt you to enter this amount after you have entered your 1099-Q information.

Since the calculation of taxable earnings is made separately for QTP and ESA distributions, the distributions for each type of program must be totaled separately. That is, all of the beneficiary's QTP distributions are totaled and all of the beneficiary's ESA distributions are totaled.

How are taxable earnings determined?

TaxAct calculates the AQEE and determines if any part of the distributed earnings must be included in income. The calculation is made separately for QTP and ESA distributions.

  1. TaxAct divides the AQEE by total distributions.
  2. The ratio determined in Step 1 is multiplied by total distributed earnings. The result is the amount of tax-free earnings.
  3. The tax-free earnings determined in Step 2 are subtracted from the total distributed earnings. This is the amount that must be included in income.

On whose return is the income included?

The recipient listed on the 1099-Q enters the form in his or her return and therefore should report any taxable income. The beneficiary is listed as the recipient of a QTP distribution when the distribution is made (1) directly to the beneficiary, or (2) to an eligible school for the benefit of the beneficiary. Otherwise, the account owner is listed as the recipient of a QTP distribution. The beneficiary should always be listed as the recipient of an ESA distribution.