Common questions for Form 1099-Q Education Distribution (ESA and QTPs) in Lacerte

1. Go to Screen 14.3, Education Distributions (ESAs & QTPs).
2. Scroll down to the Education Distributions (1099-Q) section.
3. Check the Spouse box if applicable.
4. Under Qualified Expenses enter the Higher education (net of nontaxable benefits).
   • Check out this IRS resource to learn what’s considered a qualified education expense.
   • Enter the total expenses for any ESAs and QTPs in the applicable fields for the taxpayer or spouse.
5. Enter the Elementary and secondary education (net of nontaxable benefits).
6. Under Form 1099-Q enter the amounts for boxes 1–5 in the applicable fields.
   • The earnings portion of the distribution for taxable QTP rollovers are included in income on the tax return and subjected to the 10% penalty in Part II of Form 5329. 
   • Refer to Pub 970 for information regarding the taxability and nontaxability of ESA and QTP rollovers.
7. Click Add from the left navigation panel to add more 1099-Q distributions.

1. Go to Screen 47, Notes.
2. Select Statement from the left navigation panel.
3. Enter the information regarding the 1099-Q distribution and expenses incurred.
   • Once the statement has clearly indicated that the distribution was completely used up, it'll indicate to the IRS just what occurred with the distribution.

1. Go to Screen 38.1, Education Credits/Tuition Deduction.
2. Scroll down to the Current Year Expenses subsection.
3. Check that the expenses entered aren't the same as the expenses entered on Screen 14.3, Education Distributions.
   • Only education expenses that remain after being used against the distribution can be claimed as education expenses for Form 8863.
   • Inaccurate reports may prompt an IRS notice.

1. Go to Screen 14.3, Education Distributions.
2. Enter the Name of payer.
   • Check the Spouse box if applicable.
   • Complete the Dependent Beneficiary subsection only if this 1099-Q belongs to a dependent entered on screen 2. For all other 1099-Qs, leave the First name, Last name, and Social security number fields here blank.
3. Scroll down to the Qualified Expenses subsection and enter any education expenses that may offset the distribution amount.
4. Enter the amounts from boxes 1-5 in the applicable fields.
   • If the distribution wasn't used to pay for qualified education expenses, leave Rollover: 1 = nontaxable, 2 = taxable (4) (code 304) blank.

Lacerte will generate a QTP Distribution Worksheet calculating the taxable amount of the distribution, if any. The taxable portion is reported on Form 1040 as Other Income, and amounts subject to additional tax will flow to Form 5329.

If the QTP Distribution Worksheet is not generated, and the taxable amount of distribution is not being calculated, verify that the Social security number field on screen 14.3 was not completed by mistake.

New in tax year 2024 distributions made after December 31, 2023, a beneficiary of a section 529 qualified tuition program is permitted to roll over a distribution from a section 529 account into a Roth IRA for the beneficiary if certain requirements are met. See IRS Pub. 590-A for more information.

To enter this distributions

1. Go to screen 14.3 Education Distributions.
2. Enter the Payer information from the 1099-Q.
3. In the 1099-Q section enter lines 1-5. For line 4 enter a 1 for nontaxable.
4. For CA filers, CA does not conform to the federal rule and requires an adjustment to be made.
   • Enter the addback amount on Screen 51.011 California Modifications on the Qualified IRC 529 tuition plan rollover to Roth IRA line.
   • If additional tax is applicable enter the amount subject to CA Additional Tax on Screen 54.011 California Taxes in the Qualified IRC 529 Tuition Plan Rollover to Roth IRA Subject to Additional Tax line.