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Part of the distribution could be taxable due to part of the distribution having to be included in your income
. SEE ADJUSTED QUALIFIED EDUCATION EXPENSES BELOW.
To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax
year to the adjusted qualified education expenses.
Adjusted qualified education expenses. This amount is the total qualified education expenses reduced by any tax-free educational assistance. Tax-free educational assistance includes:
The tax-free part of scholarships and fellowships (see chapter 1),
Veterans' educational assistance (see chapter 1),
Pell grants (see chapter 1),
Employer-provided educational assistance (see chapter 11), and
Any other nontaxable (tax-free) payments (other than gifts or inheritances
) received as educational assistance.
Taxable earnings. Use the following steps to figure the taxable part.
Multiply the total distributed earnings shown in box 2 of Form
1099-Q by a fraction. The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year.
Subtract the amount figured in (1) from the total distributed earnings. The result is the amount the beneficiary must include in income. Report it on Form 1040
or Form 1040NR, line 21.