Question

Stuck in loop on tuition tax breaks (NY state, Premier desktop)

Forum|Forum|4 years ago
March 16, 2022
1 reply
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I've completed my Federal tax entry and review and am now working through my NY state return, when I've hit a loop that I cannot get out of. I'm using the desktop edition of Premier and have downloaded the latest update, but every time I relaunch I get placed right back in the middle of the loop, with no apparent way out.

We made eligible withdrawals from a 529 plan to pay for qualified K-12 tuition for our child, and received a 1099Q, so we entered that info on the Federal form: it recorded the withdrawal as income but it subsequently got zeroed out as an eligible deduction/expense. The software never explicitly asked if it was for college or K-12 tuition, only if it was for a qualified use, which it was.

Now, in the NY form, we're presented with a screen titled "Tax Breaks for College Tuition" that asks if our child was an undergrad in 2021. I answer 'No' and click continue, and am served a screen that says "This Student Doesn't Qualify for Tuition Tax Breaks". There is no question to answer, just a 'Back' and a 'Continue' button. When I click 'Continue', I am again served the previous screen ("Tax Breaks for College Tuition") asking about whether our child was an undergrad. And back and forth. Rinse and repeat.

If I click the 'Show Relevant Form' button at the bottom of the screen, it calls up the "College Tuition Qualified Expenses Optimization Worksheet", so I'm inferring that the software is assuming the 529 withdrawal was for college tuition even though there have been other eligible uses of 529 withdrawals for at least a couple years now.

This seems like a clear software glitch. Anyone else experience this or have any suggestions for getting unstuck from this loop?

KrisD15

On the Federal screens, after the 1099-Q is entered, select Done and on the next screen, the level of education the distribution was used for is asked.

Please Edit/Update the 1099-Q on the Federal return.

Deductions & Credits

Education

ESA and 529 qualified tuition programs (Form 1099-Q)

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B

bobobonoboAuthor

Thank you very much for the reply, but this did not resolve the issue. I walked back through the 1099-Q details on the Federal level and everything was set correctly, including the education level as illustrated in your screenshot. I checked the Deductions & Credits on the Federal level as well and it too specifies elementary school and not college. I even deleted the 1099-Q data and re-entered it fresh.

But the NY filing keeps locking me into this loop by asking if child was an undergrad in 2021, and bouncing back and forth between two screens when I say no.

T

tax94

So I'm the original poster of this issue, and I haven't used TurboTax since the 2021 tax season, but I subsequently learned something that's most likely the root of the issue here:

New York does not consider payment of private K-12 tuition to be a qualified withdrawal from the NY 529 plan. Even though the Federal government does, NY state does not. As a result, you need to pay state tax on the pro-rated gains portion of any such withdrawal.

There still seems to be a glitch in the software in that it won't let you out of that loop, but it's correct when it says this is not a qualified NY 529 withdrawal.

Thanks bobobonobo for the follow-up and that makes sense.

In my case, I'm a PA resident with some NY state income (hence I need to file a NY state return - IT-203). My withdrawals are from PA 529. These are not taxable in my NY return.

Its 3 years later and I still come back to this blog post every year to remind myself how bypass this annoying bug.