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1099-Q -Is anything taxable here?

My son in college received a 1099-Q reporting a distribution from our state Prepaid College Plan. I've read Pub. 970 until my eyes glazed over but I'm still confused as to whether the earnings are taxable.

His 1098-T reports his qualified tuition and related expenses as $2,620 (tuition and fees) in Box 1. He has scholarships amounting to $12,117 in Box

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His 1099-Q reports a gross distribution from the Prepaid College Plan of $2300 in Box 1. Earnings in Box 2 are $959 and basis in Box 3 is $1341.

The way I figure it, he should be taxed on $9497, which is the difference between his scholarships and his qualified tuition and fees. But does he also owe tax on any of the distribution from the Prepaid College Plan?

Reply to
Vigo
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Why is the scholarship more than the tution and related expenses? Was the scholarship used to pay both tuition and room & board?

Anyway, I agree that the taxable part of the scholarship is $9497. You have to report it as wages.

What were the amounts of the QTP used for? You can use distributions from a QTP to pay for room and board. Any part of the distribution used for non-qualified expenses is subject to tax. In the worst, which is when none of the distribution is used for qualified expenses, the income is $959 and is reported as other income. In addition, you have to pay an additional 10% tax, figured on form 5329.

You can say that the QTP distribution was used to pay for room and board, so hopefully none of it will be taxable. Then you would only pay taxes on $9497.

But if you pay room and board with the scholarship, then the $9497 is still taxable, and in addition the earnings from the QTP distribution are also taxable and there is a 10% penalty too.

So it's best to say that room and board was paid with the QTP.

Reply to
removeps-groups

He was awarded more money in scholarships than he spent in 2007 on qualified education expenses.Tuition and fees were $2,620, books were $520 and room and board was $5,684, for a total of $8,824. Scholarships totaled $12,117 and he received $2,300 from the prepaid tuition plan, for a total of $14,417, so he ended up with almost $5,600 in his pocket.

I guess he can honestly claim that he used the $2300 towards his room and board expenses, leaving the rest to be paid for with scholarship money. What I'm not clear on is how much of the scholarship is taxable -- I think that only tuition and fees are tax-free, right? So the $9497 is the taxable amount.

Reply to
Vigo

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