Form 1099-Q: Payments From Qualified Education Programs

What Is Form 1099-Q: Payments From Qualified Education Programs?

Form 1099-Q: Payments From Qualified Education Programs is an Internal Revenue Service (IRS) tax form sent to individuals who receive distributions from a Coverdell education savings account (ESA) or a 529 plan. These distributions — including rollovers — may be taxable, and you must determine the tax liability of any distribution using other IRS information. The form is then used by taxpayers to fill out both federal and state tax returns if the distributions received are subject to tax.

Who Can File Form 1099-Q: Payments From Qualified Education Programs?

Form 1099-Q should be filed by officers or employees who have control of a program established by a state or qualified educational institution. It can also be filed by anyone who has made a distribution from a 529 plan, also known as a qualified tuition program (QTP).

CESAs and QTPs are tax-advantaged investment accounts designed to pay for qualified higher education expenses. A 1099-Q form will identify the amount made from the account in gross distributions over the year being reported. These gross distributions are then compared to the educational expenses incurred over the year. If the gross distributions exceed qualified education expenses, then the excess is taxable and must be reported on the taxpayer's tax return. If the expenses are greater than the distributions, the individual may use the subsequent excess toward an education tax credit.

Form 1099-Q will be issued to the beneficiary student, for example, if the 529 distribution was paid to the beneficiary, the school, or a student loan provider. Any taxable amount of the distribution will be reported on the beneficiary’s income tax return. Distributions used to pay for nonqualified expenses are subject to income tax and a 10% penalty on the earnings portion of the withdrawal.

There’s often confusion about who uses the 1099-Q for their tax return: the beneficiary student or the owner of the account (who may be a parent or other relative). The person who receives the funds and whose Social Security number is on the form has to report the 1099-Q on their tax return. It’s likely that the student/beneficiary will pay little or no tax on the distributions; the same cannot be said if the beneficiary is someone other than the student using the educational savings. Younger students also often fall below the reporting threshold for a federal income tax return.

How to File Form 1099-Q: Payments From Qualified Education Programs

Form 1099-Q must include the payer/trustee’s name, address, telephone number, and tax identification number (TIN), along with the recipient's name, address, account number, and TIN, which for individuals is typically their Social Security Number.

The form includes six numbered boxes.

Box 1. This will have the gross distribution over the past year from a QTP or a CESA, whether cash or in-kind, including tuition credits or certificates, vouchers, waivers, or any similar items. Under a QTP, the amount is included in income if there has been more than one transfer or rollover within any 12-month period with respect to the same beneficiary, or a change in the designated beneficiary has been made and the new designated beneficiary is not a family member. Under a CESA, the amount is included in income if there has been a change in the designated beneficiary and the new designated beneficiary is not a family member or is over age 30 (except for beneficiaries with special needs).

Box 2. Look here for the total amount of earnings.

Box 3. This shows your basis in the gross distribution listed in box 1; it must equal box 1 minus box 2.

Box 4. This must be checked off if this is a trustee-to-trustee transfer, and this can include rollovers from a QTP to an achieving a better life experience (ABLE) account. Such rollovers are allowed under the Tax Cuts and Jobs Act between Dec. 22, 2017, and Jan. 1, 2026, without incurring any penalty or income tax. However, the rollover must occur within 60 days of the distribution.

Box 5. Here a box is checked indicating the type of account.

Box 6. This notes whether or not the recipient is the designated beneficiary.

Filers who fill out the form can also enter a distribution code in the blank spaces below boxes 5 and 6 if they choose.

There are three copies of the 1099-Q. The distributor files Copy A with the IRS, sends you Copy B, and retains Copy C. You should receive Form 1099-Q in the mail.

If distributions aren't taxable, taxpayers receiving a 1099-Q don't need to report them in their tax return but should keep the form with their tax records. If distributions are subject to taxes, then the amount is added to Line 21 of Schedule 1 and attached to Form 1040, your federal tax return, while also retaining your 1099-Q copy with your tax records.

Because the IRS receives very few 1099-Qs, the form has been converted to an online fillable format.

Form 1099-Q is available on the IRS website.

If you received qualified education program funds, your distributor should send you a copy of Form 1099-Q. If you haven't received a 1099-Q and believe you should have, contact your distributor.