Why it matters
A distribution used for qualified education expenses is generally tax-free, but the earnings become taxable when the money is not used for those expenses. The form separates the earnings from the basis so the taxable portion can be calculated.
Example
A parent takes $20,000 from a 529 plan for tuition. The plan sends Form 1099-Q, and the preparer compares the distribution with the qualified expenses before deciding whether any earnings are taxable.
Related terms
Questions about Form 1099-Q
Is every 529 distribution tax-free?
A distribution is tax-free when it is used for qualified education expenses and does not exceed those expenses. A distribution used for another purpose can make the earnings taxable and may add a penalty.
Who reports the income on Form 1099-Q?
The distribution is reported to the account owner or the beneficiary, depending on the plan. The taxpayer who receives the form should give it to the preparer with the school's expense records.