You will receive a Form 1099-Q from each of the state programs from which you received a Qualified Tuition Program (QTP) distribution in the tax year. The amount of your gross distribution (Box 1) shown on each form will be divided between your earnings (Box 2) and your basis or return of investment (Box 3). The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. This is a return of the investment in the plan. The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses. The taxable amount of any distributed earnings is calculated automatically by the program.
Entering Form 1099-Q
To enter Form 1099-Q Payments From Qualified Education Programs (Under Sections 529 and 530), follow these steps: - Open your TaxAct return, click Federal.
- On smaller devices, click in the top left corner of your screen, then click Federal).
- Click the Education drop down, then click Education program payments (Form 1099-Q).
- Click + Add Form 1099-Q to create a new copy of the form.
- Continue with the interview process to enter your information.
- Click Federal.
- Click the Education drop down, then click Student Worksheet (tuition, scholarships).
- Click + Add Student Information to create a new student worksheet.
- Continue with the interview process to enter your information.
If you do not enter the Student Worksheet for the designated beneficiary, you will see a Red Alert Error or Omission: Form 1099-Q - Student Worksheet when reviewing the return.
Frequently Asked Questions
What earnings are taxable for 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.
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 considered 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 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. Bertha 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. Bertha 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 Bertha's AQEE.
Note: TaxAct automatically totals all 1099-Q forms entered. If you have distributions not reported in the return, you will be prompted to enter them.
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 the beneficiary's QTP distributions are totaled and all 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.
- TaxAct divides the AQEE by total distributions.
- The ratio determined in Step 1 is multiplied by total distributed earnings. The result is the amount of tax-free earnings.
- 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.
Note: If the recipient is a family member, the distribution has to be reported on that person’s tax return, not your return.
Qualified Tuition Program (QTP)
- directly to the designated beneficiary, or
- to an eligible educational institution for the benefit of the designated beneficiary.
Otherwise, the account owner should be listed as the recipient of the distribution.
Coverdell ESA
For a Coverdell ESA, the designated beneficiary should be listed as the recipient. If the reporting of your distribution does not meet these criteria, contact the payer/trustee for clarification. For tax years beginning 2017 and before 2026, if you have a loss on your investment in a Coverdell ESA, you cannot deduct the loss on your return (subject to tax law changes).
How many Forms 1099-Q can I enter in TaxAct?
The TaxAct® program supports the entry of up to 12 Forms 1099-Q.
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