1099Q was in Father's name for his child, thought this was tax free?

[shf1957]

Parents have 2  twin boys in college. Parents claimed both boys. The college tuition were  roughly 6000 and scholarships were roughly 4000 for each son.  The earning on each of the 1099Q was roughly $1500  each.   The tuition credit on the 1040 for both together was $2558.      My main question is, am I doing something wrong because the 1040 on line 8 is making the full amount of the 1099Q's taxable?     I understand the 1099Q stated the father is not the designated beneficiary.. but he is the one claiming the boys and paying for their college.  THANK YOU IN ADVANCE for any prompt help with ths.

[sjrcpa]

If the 529 Plan Distributions were used for qualified education expenses, you have to tell that to the software.

And you have to reduce the tuition used for the education credit by any nontaxable 529 Plan money. No double dipping.

[shf1957]

 Don't understand what you mean by double dipping when this is showing as the Full earnings of the 1099Q 's  are fully taxable.     The actual figures put together are as follows:  tuition 12666.00  minus scholarships of 8052.  leaving a balace of  4614.

The college credit on the back of the 1040 is 2558

So in my mind the parents have a balance of 4614 - 2558 amer ed cr =2056.

The gain on the 1099Q is 3323.     ( I thought the only thing taxable on that would have been 3323-2056= 1267.    Guess I am overthinking it..

Was just nervous that the program might have a glitch.. but it's probably me.

[sjrcpa]

You said you didn't know why th 1099-Q earnings were taxable. I said because you didn't tell the software that the money was used fo education expenses.

If it's going to be nontaxable, I was pointing out that you have to deduct  the nontaxable amount from the tuition expenses used for the credit. You can't say I paid for tuition with yax free money so give me a credit for the tuition. That would be double dipping.

Depending on the tax bracket, your result of paying tax on the 529 Plan earnings and taking the tuition credit may be a better result.

I'm not going to try  to follow your numbers.

[shf1957 · Accepted solution]

No problem.  I was only trying to figure out why the entire amount was showing as taxable when i felt it should only have been around 1/2 of it. 

 I will just put the 1099Q figures on the form where it is required and take the American College Credit their entitled too and not question it.  It just didn't make sense to me.. that  1+1 wasn't equaling 2 . 

I questioned it mainly because years ago this program had a glitch with the college credit... and if you didn't catch it and put the credit on the state you would of had to of amended it. We ALL make mistakes even programs do to.

Thank  you again for taking the time out of your day to respond though.