Qualified college tuition and expenses were paid from a 529 plan in 2014. The school sent a 1098-T and the 529 plan sent a 1099-Q and everything was fine on my 2014 taxes.
In 2015 my child has left school on a medical leave and I will be receiving an insurance reimbursement payment from the tuition insurance I had purchased. For 2015, I will receive a 1098-T from the insurance company with "Box 10" showing the amount of the reimbursement.
To clarify, tuition was all paid in calendar year 2014 for the school year 2014 to 2015. The medical leave began in 2015.
I don't know what I'm supposed to do with this payment. I would like to avoid any taxes or penalties. Some of the 2014 tuition was paid from 529 non-taxed earnings and since these were qualified education expenses, I didn't owe any taxes on those earnings. But, now those payments are being reimbursed.
Does this make my 2014 529 withdrawals taxable?
Is there something like a roll-over where I can put the money back into the 529 and not have a tax liability?
What happens to amounts reported in box 10 on the 1098-T?
I haven't found much information on this situation yet. The best info I've found so far includes:
Box 10. Insurance Contract Reimbursements or Refunds If you are an insurer, enter the total amount of reimbursements or refunds of qualified tuition and related expenses that you made to the student during 2015.
Box 10 of the form comes into play only in cases in which students have had expenses reimbursed under a "tuition insurance" policy. Such policies reimburse students when they are forced to withdraw from school -- for medical reasons or family emergencies, for example -- after paying nonrefundable tuition.
When an insurer reimburses a student's expenses, it must provide that student with a copy of the 1098-T. The only box that gets filled in is Box 10, which shows the amount reimbursed. The amount of expenses used to calculate deductions and credits generally must be reduced by any reimbursement reported here.
discusses Qualified Tuition Programs and "Figuring the TaxablePortion of a Distribution"