Where is my 2020 Tax Form?
IRS Tax Form 1099Q is issued only when a withdrawal is requested during the year (please see the next Q&A for information on Year-to-Date contributions for 2020). The 1099Q tax forms will be mailed at the end of January and will also be posted on the Bright Directions web site. To access them on the Bright Directions site – here are the steps:
- Log into your account
- Once logged in to your account click on the “Statements & Tax Forms” menu
- On this page you will have the ability to select several “Document Types” including “Account Statement”; “Welcome Letter/Confirm”; “Prior Manager Statements”; or “Tax Forms (1099Q)”.
- Select “Tax Forms (1099Q)”
Where can I get the full year 2020 contribution amount for taxes?
2020 Contributions for Illinois state income tax purposes: We’ve included 2020 contribution information for you on your December 31, 2020 account statement (located below the pie chart on your statement). Contributions are reported on a cash basis so if you made any contributions online at the end of December 2020 or by mail with a late December 2020 postmark you will want to see if they were included in the transaction activity on your December 31st statement or if we received them and posted them in January 2021 as a “Prior Year” contribution. A 2020 postmarked contribution invested in January 2021 as a “Prior Year” contribution should be eligible for the 2020 Illinois tax deduction. Likewise, make sure to review your 1st quarter 2020 account statement for any “Prior Year” contributions for 2019 that you would need to adjust for.
PLEASE REVIEW to your records to match your total contributions. The year-to-date contribution amount we report will also include contributions to your account by others (those generally would be deductible by the contributor versus you). Also, keep in mind ONLY the basis or contribution portion of an out-of-state rollover is deductible (the earnings portion cannot be deducted).
What is the limit for the Illinois state income tax deduction?
Individuals who file an Illinois state income tax return are eligible to deduct up to $10,000 per tax year ($20,000 for married taxpayers filing jointly) for total combined contributions to an Illinois 529 plan.
Who can take the Illinois state income tax deduction?
The Illinois state income tax deduction is available to an individual who contributes to an
Account and files an Illinois state income tax return.
What is the deadline to contribute to take advantage of the Illinois state income tax deduction?
Contributions may be completed online or mailed. Contributions that are mailed must be postmarked to Bright Directions no later than December 31, 2020 to be eligible for a 2020 deduction. Electronic contributions must be completed by 11:59pm Central Time on December 31 to be considered a 2020 contribution.
Any contribution made after 3pm CT on December 31st but before 11:59pm CT on December 31st will post to your account on January 4th, 2021, but will be coded “Prior Year Contribution” and generally should be eligible for the 2020 state income tax deduction.
Contributions addressed to Bright Directions and postmarked in 2020 but received in 2021, will be invested on the day the check is received – will be coded as a “Prior Year Contribution” and will be considered a 2020 contribution for tax deduction purposes.
Will you send me a form showing my contributions so I can take the Illinois state income tax deduction?
In order to take the Illinois state income tax deduction for your contribution, you would simply need to provide your tax preparer with a copy of your canceled check or bank statement. Any Illinois tax payer who makes a contribution to a Bright Directions account should be eligible to take advantage of the state income tax deduction. It is our understanding that Illinois Schedule M is where tax deductible contributions to Bright Directions are to be reported for Illinois state income tax purposes.
If I make an accelerated gift for Federal Gift Tax purposes this year, will I be able to take the Illinois state income tax deduction in each of the next 4 years for that contribution?
It is our understanding that you may take the Illinois state income tax deduction only in the year that the contribution was made. The Illinois state income tax deduction does not carry forward to future years for an accelerated gift. You will want to consult your tax or financial professional for more information regarding a large gift and any tax considerations that should be considered.
Do rollovers from an out-of-state 529 plan count for the Illinois state income tax deduction?
The contribution, or basis, portion of a rollover from a non-Illinois 529 plan is eligible for the Illinois state income tax deduction, but not the earnings portion. In order for the rollover contribution to be considered for Illinois state income tax deduction purposes, the rollover check needed to be dated 2020 and the envelope with the rollover check from your previous 529 plan needed to have a 2020 postmark. Please note, the eligibility for the state tax deduction is based on when we receive the rollover check – not the completed rollover request form.
I need to take a withdrawal from my account.
We recommend matching your qualified expenses and 529 withdrawals in the same calendar year for tax purposes.
To request a withdrawal from an account:
- Log into your account online and select the “Withdraw” button to walk through the easy steps.
- Complete and submit the Withdrawal Request Form
We recommend that you keep all receipts, invoices, or any other documentation of the expenses in the event there are ever questions in the future. You do not need to provide Bright Directions with any receipts when you request a distribution. If you are ever audited, you will need to provide the documentation of what the withdrawn funds were used for.
Qualified Higher Education Expenses (Source: IRS Publication 970):
These are expenses related to enrollment or attendance at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time, defined later.
- The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school.
- Tuition and fees.
- Books, supplies, and equipment.
- Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school.
- Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.
- The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
- The actual amount charged if the student is residing in housing owned or operated by the school. You may need to contact the eligible educational institution for qualified room and board costs.
- The purchase of computer or peripheral equipment, computer software, or Internet access and related services if it’s to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school. (This doesn’t include expenses for computer software for sports, games, or hobbies unless the software is predominantly educational in nature.)
See Note Below regarding # 5, 6, and 7.
- For distributions made after 2018, expenses for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act.
- For distributions made after 2018, no more than $10,000 paid as principal or interest on qualified student loans of the designated beneficiary or the designated beneficiary’s sibling. A sibling includes a brother, sister, stepbrother, or stepsister. For purposes of the $10,000 limitation, amounts treated as a qualified higher education expense for the loans of a sibling are taken into account for the sibling and not for the designated beneficiary. You can’t deduct as interest on a student loan any amount paid from a distribution of earnings from a qualified tuition program after 2018 to the extent the earnings are treated as a tax free because they were used to pay student loan interest.
- Qualified Elementary and Secondary Education Expenses These are expenses for no more than $10,000 of tuition, incurred by a designated beneficiary, in connection with enrollment or attendance at an eligible elementary or secondary school.
Half-time student. A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled.
*IMPORTANT NOTE: CAUTION – Illinois Qualified Expenses do not include expenses for:
- tuition in connection with the Beneficiary’s enrollment or attendance at an elementary or secondary public, private, or religious school. The amount of cash distributions for such expenses from all 529 qualified tuition programs with respect to a Beneficiary shall, in the aggregate, not exceed $10,000 during the taxable year;
- tuition, fees, books, supplies, and equipment required for participation in an Apprenticeship Program;
- payments on Qualified Education Loans of the Beneficiary or a sibling of the Beneficiary, subject to a $10,000 aggregate limit.
Currently, expenses for K-12 expenses, apprenticeship programs, and repayment of qualified education loans are not Illinois Qualified Expenses. As a result, for Illinois income tax purposes, if a taxpayer previously claimed an Illinois income tax deduction for Contributions to the account and distributions are then made for such expenses, the taxpayer’s income will be increased by an amount equal to the Contribution Portion of the withdrawal attributable to the contribution that was previously deducted.
You should consult with your financial, tax or other advisor regarding your individual situation.
The earnings portion of a nonqualified withdrawal may be subject to federal and state income taxes, a 10 percent federal tax penalty, and Illinois may recapture prior tax deduction benefits. Please consult your tax advisor.
View IRS Publication 970 for additional details.