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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29652
Experience:  Taxes, Immigration, Labor Relations
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A 1099 Q reports box 1 of 41K Box 2 40K and Box 3 750. The

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A 1099 Q reports box 1 of 41K Box 2 40K and Box 3 750. The supporting paperwork shows that this was a fund based in the market so the actual cost basis of the 41K is 35K leaving earnings at 4K. How do you report this so you aren't being taxed on 40K?
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question! IRS form 1099-Q is payments from Qualified Education Programs. You do not owe tax on the $41,000 if you used the entire amount to pay for qualified educational expenses.

If you paid $41,000 or more for qualified educational expenses, you do not have to report anything from the 1099-Q on your tax return. Keep it for your records.

So, the way to keep from being taxed on the $41,000 is to use the entire amount for qualified educational expenses.

Thank you for using and have a great day.

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Customer: replied 4 years ago.

This does not answer my question. The account was closed, there are no more children and parents aren't going to school. The account was closed. I was given a message that you were going to ask for additional info and I never got those questions. So with that info in mind how do we not get taxed on the 40K?

Hi and welcome to Just Answer!

Because distribution is not used to pay qualified education expenses - it is partly taxable.

However - you will be taxed only on earnings.

Your original contributions are distributed tax free.


Your taxable income is reported on form 1099Q Box 2 Earnings which based on your information = $40,000.

The taxable amount must be reported on Form 1040 line 21.

Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income - which is reported on Form 1040 line 58 (use Part II of Form 5329 to figure any additional tax).


If you think that the actual cost basis and earnings are reported incorrectly - you need to contact the payer - provide your arguments and ask for correction. Mistakes do happens sometimes.


So far based on your information - yes - you need to include $40,000 in your taxable income and pay additional 10% penalty.

Sorry if you expected a different answer.

Please be sure top ask for clarification if needed.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29652
Experience: Taxes, Immigration, Labor Relations
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