Husband’s employer provides a tuition benefit for our kids that is given directly to him and is taxed as income (goes in Box 1 of his W-2). Because it is already taxed and is dispersed to him directly, I believe I can still use 529 funds for QEE without any penalty or tax. Meaning i can take a withdrawal that includes the amount that was a taxed tuition benefit.
For ex, if I sent tuition payment of 20k and spouse received taxed tuition benefit of 8k, I can take a 529 withdrawal of 20k. Is that correct?
I’ve search the internet and can only find this addressed in the TurboTax forums. There it seems that the above is correct, but it’s an odd circumstance so want to see what you all think.
That is definitely true if you’re withdrawing bc of a scholarship that’s not taxed (you pay tax on the earned income of the 529 withdrawal). But this employer benefit is already taxed like income. That’s where I’m stuck. You might be right but then how to account for one being taxed already and one not taxed. Maybe it ultimately is the same.
A lot of 529 stuff awaits IRS interpretation. - ie there’s no guidance which is unfair.
Others can chime in but I believe as your employer is giving you additional salary, in essence but for college, it’s why you save the 10%. But it’s not double taxation by taxing you on the gain of the 529.
But all 529 situations or most have this unknown info.
Is the employer “tuition benefit” restricted by the employer in any way, or is it a qualified benefit? For instance, do you have to show that a child is attending college, has actual tuition expenses, etc? What’s to keep your husband from spending the “tuition benefit” that is taxed as income and given directly to him on a new car or at a blackjack table in Vegas? If it’s an employer “tuition benefit” in name only, than I think it has no impact on the use of 529 dollars.