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Category: Education: Tax Breaks Related to School

How do I report qualifying education expenses that I paid with a 1099-Q distribution?

If you contributed to a Coverdell ESA (CESA) or a Qualified Tuition Program (QTP), you may have received a distribution from your account during the year to help pay for qualified education expenses. If so, you should have received a Form 1099-Q to report your distribution to you. There are a few ways that you can report this on your return. Unfortunately, depending on your particular circumstances, one way may work better than the other. There is not one way that always works best.


For an example of how the below options can be used, click here.


Option 1: Use your expenses to exclude the 1099-Q earnings from income.
If you receive a Form 1099-Q for your distribution, the earnings may be included in your return. If you used the distribution to pay for qualified expenses, then the earnings can be excluded from your return. To do so, you would report your qualified expenses on the 1099-Q entry page (Income Menu > Other Income > Payments from Qualified Education Programs: Form 1099-Q).


If you report your expenses here, you cannot report the same expenses for either a Tuition and Fees Deduction or an Education Credit. You would then only be able to list in one of those sections the amount of expenses that were paid out-of-pocket and that you did not list as being paid with your 1099-Q distribution.


Option 2: Use your qualified expenses for a Tuition and Fees Deduction or Education Credit.
If you choose, you can receive a larger Tuition and Fees Deduction or Education Credit by reporting ALL of your qualified expenses for that deduction or credit. However, the result of this would be that your 1099-Q earnings would be included fully in your income. To do this, you would list the expenses for the appropriate deduction or credit, and you would not report any expenses on the entry page for your 1099-Q.


Important: Whichever option you choose, you can only list the same expenses once. For example, if you paid a total of $5000, you can list $2000 in one section and $3000 in another; Or you can list all $5000 in just one section and leave the others blank. However, you COULD NOT list $5000 on your 1099-Q entry page AND $5000 for an Education Credit. Regardless of how you report your expenses, the total of all expenses listed on your return should add up to be the total of expenses that you paid for the year.


For more information, please review Form 1099-Q.