If you're paying for school expenses from a 529 plan or a Coverdell ESA, you will likely receive an IRS Form 1099-Q, which reports the total withdrawals you made during the year.
Introduction
If you contribute money to a qualified tuition program, such as a 529 plan or a Coverdell ESA, you will likely receive an IRS Form 1099-Q in each year you make withdrawals to pay school expenses of the beneficiary. The 1099-Q reports the total of all withdrawals you make during the year; however, some of this amount may be taxable depending on how you spend the money.
Coverdell ESAs and 529 plans
A Coverdell ESA and 529 plan operate in a similar fashion and provide the same type of tax savings. Essentially, these are accounts that are set aside to pay the school expenses of the beneficiary. The plans have some key differences in what educational expenses they cover but their tax treatment is essentially the same: you invest money on behalf of a student (which can be yourself), the investment profits are tax-free and distributions that go to pay qualifying educational expenses are not subject to income tax.
Form 1099-Q information
Form 1099-Q comes from the administrator or bank that manages your 529 plan or Coverdell ESA. If you set up the account and make contributions to it, then you are the owner and are the recipient of the 1099-Q. If you create one of the accounts to put someone other than yourself through school, that student has no control over the funds and is not responsible for any of the tax consequences.
The 1099-Q provides three key pieces of information. Box 1 reports your annual distributions or withdrawals from the account. The second box reports the portion of the distribution that represents the income or earnings of your initial investment. Finally, box 3 reports your basis in the distribution. Essentially, this is the amount of your distribution that relates to original contributions you make to the account.
The form also includes information on the type of account you own and amounts, if any, that you transfer between two qualified tuition plans.
Calculating taxable amount
If the distribution doesn’t exceed the amount of the student's qualifying expenses, then you don't have to report any of the distribution as income on your tax return. If the distribution exceeds these expenses, then you must report the earnings on the excess as "other income" on your tax return. When you pay a student’s school expenses with these funds, you cannot claim a tuition deduction or either of the educational tax credits for the same expense.
When you will receive 1099-Q
The administrator of your qualified tuition plans must send you the Form 1099-Q in any year you take a distribution or transfer funds between accounts. You should receive the 1099-Q no later than early February following the close of the tax year since the administrator must send it by January 31. Administrators must also provide a copy of each form to the IRS no later than March 31 if sent electronically, or February 28 if using a paper copy.
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FAQs
Form 1099-Q ensures you're paying your appropriate taxes on distributions from a Coverdell education savings account (ESA) or a 529 plan. If the form indicates you owe taxes, this will need to be included on your state and federal tax returns.
Do I need to report 1099-Q on my tax return? ›
If the distribution doesn't exceed the amount of the student's qualifying expenses, then you don't have to report any of the distribution as income on your tax return. If the distribution exceeds these expenses, then you must report the earnings on the excess as "other income" on your tax return.
What triggers a 1099-Q? ›
You'll receive an IRS Form 1099-Q when you withdrawal money from a 529 plan or a Coverdell Education Savings Account (Coverdell ESA). Paying for college. Qualified education programs. Beneficiary receives 1099-Q.
Does 1099-Q go on parent or student? ›
Whoever the 1099-Q is issued to must report that 1099-Q on their tax return. In other words, the person whose SSN is on the 1099-Q should report the form – it could be the beneficiary student or the account owner, who may be a parent or other relative.
Do you have to report 529 withdrawal on tax return? ›
It depends on what the withdrawal was used to pay for. If the funds were spent on qualified education expenses or rolled into another 529 plan, you don't have to report anything. However, 529 funds spent on purchases not falling into one of these two categories will be considered taxable withdrawals.
How much of my 1099-Q is taxable? ›
The full amount of earnings as reported on Form 1099-Q is taxable if: You're the designated beneficiary. You didn't use the funds for your own qualified education expenses.
Who pays taxes on 529 owner or beneficiary? ›
The earnings portion of a Non-Qualified Distribution is taxable to the individual who receives the payment, either the Account Owner or the Designated Beneficiary.
Will the IRS catch a missing 1099-Q? ›
Will the IRS catch a missing 1099? The IRS knows about any income that gets reported on a 1099, even if you forgot to include it on your tax return. This is because a business that sends you a Form 1099 also reports the information to the IRS.
How to report 529 contributions on tax return? ›
Reporting a 529 plan on your taxes
It's not required to report 529 plan contributions on your federal tax return. However, you'll need to report them on your state taxes if your state has income tax. You'll also need to report any withdrawals not used for qualified educational expenses.
What are qualified expenses for 1099 Q? ›
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).
In summary, the 1099-Q reports withdrawals from college savings plans, while the 1098-T reports tuition and fees paid and scholarships or grants received. They both relate to education expenses, but they impact financial aid eligibility differently.
Are 529 contributions tax deductible? ›
Contributions to a 529 are after-tax and not federally tax deductible. However, if you invest in your own state's 529 plan or if your state is a "tax parity state," you may benefit from state income tax deductions on contributions or state tax exemptions on withdrawals.
Who reports the 1099-Q on their return? ›
File Form 1099-Q (Info Copy Only) if you: Are an officer or an employee, or the designee of an officer or employee, having control of a program established by a state or eligible educational institution. Made a distribution from a qualified tuition program (QTP).
How do I avoid tax on 529 distributions? ›
If your child is in college, there is no limit for 529 withdrawals. The only requirement is for the withdrawals to be used for qualified expenses. If you're paying for private school expenses for younger children, you can withdraw up to $10,000 tax-free for qualified education expenses for children between K-12.
Can I use my child's 529 for myself? ›
Your 529 can be used for student loan repayment up to a $10,000 lifetime limit per individual. Up to $10,000 annually can be used toward K-12 tuition (per student). You can transfer the funds to another eligible beneficiary, such as another child, a grandchild, yourself or a friend.
Where does 1099-Q flow to on a tax return? ›
Information entered on the IRS 1099-Q will flow to the QEPD worksheet, and if taxable, to Form 1040 Line 21. For additional information regarding IRS 1099-Q forms, see IRS Publication 970 Tax Benefits for Education.
How do I report 529 withdrawals on my tax return? ›
Form 1099-Q and Form 1098-T will list the amount of the 529 plan distribution and how much you used to pay for college tuition and fees, but it is up to you, the 529 plan account owner, to calculate the taxable portion.
