Purpose and Reporting Requirements
Form 1099-Q reports distributions from qualified tuition programs under Section 529 and Coverdell ESAs under Section 530 paid during 2010. For 2010 only, payers may optionally report Coverdell ESA fair market value as of December 31, 2010, instead of separately calculating earnings and basis.
Program Type Identification
You must verify whether the distribution is from a Section 529 qualified tuition program or a Coverdell ESA, then check Box 5 accordingly. The 2010 instructions require explicit program-type identification for private programs, state programs, or Coverdell ESAs. Section 529 programs include both state-sponsored plans and private eligible educational institution plans.
Recipient Information Requirements
Enter the recipient's full name and social security number, individual taxpayer identification number, or adoption taxpayer identification number. For 2010, you may display only the last four digits on Copy B furnished to the recipient. You must report the complete identification number to the IRS on all copies filed with the agency.
Calculating Distribution Amounts
Box 1 – Gross Distribution
Calculate and enter the gross distribution amount, which equals the sum of Box 2 earnings and Box 3 basis. For 2010 Coverdell ESA distributions, you may instead report only the fair market value as of December 31, 2010, in the designated blank box below Boxes 5 and 6.
Box 2 – Earnings Portion
Enter the earnings portion if reporting individual earnings and basis components. If you elect the 2010 Coverdell ESA FMV alternative, you must leave Box 2 blank and direct the recipient to Publication 970 to calculate taxable earnings using the worksheet provided. The earnings calculation uses the earnings ratio described in regulations and official notices.
Box 3 – Basis Portion
Enter the basis or contribution portion for standard reporting methods. For Coverdell ESAs using the 2010 FMV reporting method, you must omit this box and note that the recipient must reconcile using the Coverdell ESA worksheet in Publication 970. The basis amount must equal Box 1 minus Box 2 when both boxes are completed.
Trustee-to-Trustee Transfer Reporting
Check Box 4 if a trustee-to-trustee transfer occurred from one Section 529 program to another Section 529 program, from one Coverdell ESA to another Coverdell ESA, or from a Coverdell ESA to a Section 529 program during 2010. You must file a separate Form 1099-Q for any trustee-to-trustee transfer. If you do not have records showing that a gross distribution from a Coverdell ESA made in 2010 was a trustee-to-trustee transfer, you must leave Box 4 blank.
Beneficiary Status Indicator
Check Box 6 if the recipient is not the designated beneficiary under the qualified tuition program or Coverdell ESA. For 2010, this alerts the recipient that taxability rules under Section 529 or Section 530 may apply.
Section 529 rules apply when a change of beneficiary involves someone who is not a family member. Section 530 rules apply when a change of beneficiary involves someone over age 30 or not a family member, except for beneficiaries with special needs.
Distribution Code Assignment
You must identify the distribution type using the 2010 distribution codes in the designated box below Boxes 5 and 6:
- Code 1: Distributions including transfers to the recipient and direct payments to qualified educational facilities
- Code 2: Excess contributions plus earnings taxable in 2010
- Code 3: Excess contributions plus earnings taxable in 2009
- Code 4: Disability distributions made after the recipient was disabled
- Code 5: Death payments to a decedent's beneficiary, including an estate
- Code 6: Prohibited transaction distributions
Codes 2 and 3 specifically address excess contribution taxability in 2010 or 2009 and must be reported if applicable.
Account Administration Details
Assign an account number to distinguish the recipient's account on this form if you maintain multiple accounts for the same recipient. Enter your payer or trustee federal identification number, which is the employer identification number for institutions. You must complete your full name and address on all forms filed.
Filing and Distribution Deadlines
Furnish Copy B to the recipient by January 31, 2011. File Copy A with the IRS by February 28, 2011, if filing on paper, or by March 31, 2011, if filing electronically using IRS-approved software per Publication 1220. You must include Form 1096 transmittal with Copy A filed to the IRS.
Form Preparation Restrictions
You must not file downloaded forms from the IRS website because they cannot be scanned during processing. Use official red-ink forms or IRS-approved electronic filing methods. The transmittal requirement applies to all paper filings regardless of the number of forms submitted.
Coverdell ESA Reporting Flexibility
For distributions made during 2010, payers may report only the account fair market value as of December 31, 2010, instead of separately itemizing earnings and basis in Boxes 2 and 3. This reporting alternative shifts the calculation burden to recipients using Publication 970 worksheets. You must label the fair market value amount as “FMV” in the blank box and leave Boxes 2 and 3 blank when using this method.
Distribution Code Expansion
The 2010 instructions permit use of code 2 for excess contributions plus earnings taxable in 2010 and code 3 for excess contributions plus earnings taxable in 2009. These codes address prior-year carryover issues unique to the 2009–2010 transition period. You must advise payees at the time the distribution is made that code 3 earnings are taxable in the year the excess contributions were made.
Recipient Identification Truncation
The 2010 instructions confirm that Copy B may display only the last four digits of the social security number, individual taxpayer identification number, or adoption taxpayer identification number for recipient privacy. You must report the complete number to the IRS and state or local agencies on all copies filed with governmental entities.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
