How to Report Form 1099-Q

How to Report Form 1099-Q
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If you withdrew funds from a qualified tuition program, you'll receive a Form 1099-Q from your plan administrator that details the transactions. Depending on how the withdrawals were used, you may or may not have to report the information on 1099-Q on your taxes.

Qualified Tuition Programs

Qualified tuition programs such as Coverdell ESA and 529 plans are education investment vehicles that let taxpayers avoid certain income taxes. A taxpayer invests after-tax dollars into an investment plan. Any income on this investment is tax-free as long as the proceeds are used to pay for a beneficiary's educational expenses.

Taxable Versus Nontaxable Distribution

Some, all or none of plan distributions may be taxable. As long as the funds are used to pay for qualified tuition expenses for a beneficiary, are transferred between trustees. or are rolled over into another qualified educational program within 60 days, the distribution is not taxable. The IRS defines qualified educational expenses as tuition, fees and other expenses that a student must pay as a condition of enrollment.

Reporting Nontaxable Distributions

If the entire distribution is nontaxable, you do not need to report it on your tax return. However, you should save a copy of the Form 1099-Q. You should also retain receipts or bank statements that document how the proceeds were used in case the IRS asks for further information.

Reporting Excess Distributions

If some of the withdrawal was used for non-eligible purposes, the recipient must report a portion of the distribution as other income on your tax return. The actual calculation of the taxable portion is a complex formula that considers the history of contributions and distributions from the account. It's best to work with a tax accountant to ensure you get this figure right.

Report the taxable portion of the distribution on line 21 of Form 1040, labeled Other Income. Next to the amount, write Qualified Tuition Program or Coverdell ESA, depending on the plan that you have.