Reporting 1098-T and 1099-Q to the IRS

It’s last-minute-tax-questions week! Today’s question: Whose tax return does the 1099-Q go on? Answer: It depends.

The 1099-Q will have the SSN of the person to whom the distribution was paid. The 1098-T will have the student’s SSN. This is one of the reasons it is generally recommended to have distributions from your 529 plan paid directly to the student– matching makes it easy.

If the student has no other income that requires them to file a tax return (unearned income <$1000, W-2 income <$6,200, self-employment income <$400), then they do not need to file a tax return despite receiving the 1098-T and 1099-Q. The only exception to this is if withdrawals from the 529 plan exceeded qualified expenses, rendering tax and penalty due on the earnings portion of the distribution. (If the excess is due to their receipt of a scholarship, then only tax is due.) This is another reason to have distributions paid to your student: in the event taxes are due, they are probably in a lower bracket than you.

You would report the 1098-T on your return if you are claiming the education tax credits, regardless of the fact that your student’s SSN is on it.

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