Tax Time Reporting: 1099 Q

Do you need to report 1099 q income on your tax return? As long as none of the distribution is taxable (i.e., you have qualifying expenses to offset it), NO, you do not have to report it.

However, you should keep records of your qualified expenses.  That’s especially true if the distributions are going to the account owner (parent, typically) and not the beneficiary (student). That’s because the 1098 t from the school  will be issued to the student and the IRS computer matching 1099 qs to 1098 ts will not find a match. In that case, your return is likely to be flagged and you’ll get a deficiency notice from the IRS assessing tax and penalties.

Ho do you avoid that? Make sure the distributions go to the student, not the parent. This has the added benefit that any excess distribution would be taxed at the student’s marginal tax rate, which is likely to be lower than the parents’.

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