How do I exclude the 10% penalty on 529 distributions when I had tax-free educational assistance (scholarships, etc.)?

First, enter your 1099-Q information:

1. On the Income > Tuition Program Distributions (1099-Q) screen, answer the questions and, if needed, enter your 529 distribution as shown on your 1099-Q.
2. When you're finished with all the 1099-Q screens, click Continue.
3. On the next screen, check the box for the type of education expenses you had and enter any other information requested that's applicable.

Second, enter your education expenses and educational assistance (scholarships):

1. Navigate to Menu Path: Deductions/Credits > Common Deductions/Credits > College Tuition (1098-T).
2. You'll be prompted to enter your education expenses and educational assistance amounts here (or you may be prompted to just click Save and Continue if you're a dependent on someone else's return).

Please note, you can only exclude the 10% penalty if your distribution is less than or equal to your scholarship, allowance, or payment. If your distribution is more than your scholarship, allowance, or payment, you may still have a 10% penalty on some of your distribution. Enter your full distribution, education expenses, and assistance amounts, and we'll calculate any penalty you owe in this case.