What is 1099-Q income?

Most distributions from a 529 education plan shown on a Form 1099-Q are not taxable and are not shown anywhere on your tax return. If your qualified education expenses during 2014 are equal to or more than the distribution shown in Box 1 of the Form 1099-Q, then the distribution is not taxable and is not reported on your tax return.

If your qualified education expenses during the year are less than the 529 plan distribution shown in Box 1 of the 1099-Q, then part of the distribution may be taxable. Only the portion of the distribution that is earnings is taxable income, and only those earnings that are allocated to the part of the distribution that was not used for education expenses is taxable.

For example, if your 1099-Q Box 1 shows a distribution of $10,000 and box 2 shows earnings of $2,000. Then if you did not use any of the $10,000 for qualified education expenses, then the full $2,000 in earnings is taxable income that you should enter on the Other Income screen as miscellaneous income. Use a description of "1099Q taxable income" in the miscellaneous income description box.

Continuing with the example, if you had $5,000 in qualified education expenses instead of zero, then only $1,000 of the $2,000 in earnings reported on Box 2 of the 1099-Q would be reported as taxable income on your return. If you had $9,000 in qualified education expenses then you would only report $200 of the $2,000 as taxable income (only $1,000 out of the $10,000 distribution wasn't used for education expenses so only 10% of the earnings in Box 2 are taxable).

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