Updated October 29, 2026. Quick answer: Worksheet 6-3 in Publication 970 (2025) works out, for each Coverdell education savings account, how much of a distribution is tax free and how much goes on Schedule 1, line 8z. It first finds your adjusted qualified education expenses (AQEE), then splits each distribution into basis, expenses and taxable earnings, and also tracks the basis left in the account.
What this worksheet is for
The publication names the job: “Worksheet 6-3, at the end of this chapter, can help you figure your AQEE, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s).” The rule it applies: “Generally, distributions are tax free if they aren’t more than the beneficiary’s AQEE for the year.” “A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary’s AQEE for the year.”
Part I: expenses, lines A to H
| Line | What it asks |
|---|---|
| A | “Enter your total qualified education expenses for 2025” |
| B | Expenses paid with tax-free educational assistance (for example tax-free scholarships, veterans’ educational benefits, Pell grants, employer-provided educational assistance) |
| C | Qualified higher education expenses deducted on Schedule C, Schedule F or Schedule 1, line 12 |
| D | Qualified higher education expenses on which an American opportunity or lifetime learning credit was based |
| E | “Add lines B, C, and D” |
| F | “Subtract line E from line A. This is your AQEE for 2025” |
| G | Total distributions from all Coverdell ESAs during 2025; the sheet excludes rollovers and the return of excess contributions |
| H | “Divide line F by line G. Enter the result as a decimal (rounded to at least 3 places). If the” result is 1.000 or more, enter 1.000 |
Complete Part I on one worksheet only. Part I also carries a caution for 529 plan users: “If you had a distribution from a qualified tuition program (QTP), see Coordination With Qualified Tuition Program (QTP)” Distributions in the publication.
Part II: each account, lines 1 to 15
| Lines | What they do |
|---|---|
| 1 to 3 | Contributions for 2025 (including those made for 2025 from January 1, 2026 through the filing due date), basis at the end of 2024, and the two added |
| 4 to 6 | “Multiply line 4 by line H. This is the amount of AQEE attributable to this” Coverdell ESA, then line 4 minus line 5 |
| 7 and 8 | The value of the account on December 31, 2025 plus outstanding rollovers, then lines 4 and 7 added |
| 9 and 10 | “Multiply line 4 by line 9. This is the amount of basis allocated to your distributions, and is tax free” |
| 11 to 13 | “Multiply line 11 by line 12. This is the amount of qualified education expenses allocated to your” distributions, and is tax free |
| 14 | “Subtract line 13 from line 11. This is the portion of the distributions from this Coverdell ESA in” 2025 that you must include in income |
| 15 | “Subtract line 10 from line 3. This is your basis in this Coverdell ESA as of December” 31, 2025 |
The sheet adds a shortcut: “If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15.”
Part III: the total
“Taxable amount. Add together all amounts on line 14 for all your Coverdell ESAs.” The publication says to include it on Schedule 1, line 8z, listing the type and amount of income, and Schedule 1 (Form 1040) for 2025 prints that line as “Other income. List type and amount:” The publication adds that Form 1099-Q for each account shows the gross distribution in box 1 and, for the year, the payer may instead report the account value in box 7; the boxes are explained on the 1099-Q boxes 1 to 3 page.
The IRS example run through the worksheet
Publication 970 (2025) gives a person who received an $850 distribution from a Coverdell ESA that had $1,500 contributed before 2025 and no contributions in 2025, a $950 balance at the end of 2025 and $700 of AQEE. The publication works that case with a four-step method and gets “You must include $25 in income as distributed earnings not used for qualified education expenses.” The table below runs the same facts through the worksheet lines, assuming the $700 is the only expense figure and nothing offsets it.
| Line | Entry | Amount |
|---|---|---|
| A | Total qualified education expenses (no offsets assumed) | $700 |
| B, C, D | Tax-free assistance, deducted expenses, credit expenses | $0 |
| E | Lines B, C and D added | $0 |
| F | Line A minus line E: the AQEE (computed) | $700 (computed) |
| G | Total distributions from all Coverdell ESAs | $850 |
| H | Line F divided by line G (computed) | 0.824 |
| 1 | Contributions for the year | $0 |
| 2 | Basis at the end of the prior year | $1,500 |
| 3 | Lines 1 and 2 added (computed) | $1,500 (computed) |
| 4 | Distributions from this account | $850 |
| 5 | Line 4 times line H (computed) | $700.40 (computed) |
| 6 | Line 4 minus line 5 (computed) | $149.60 (computed) |
| 7 | Value of the account at year end | $950 |
| 8 | Lines 4 and 7 added (computed) | $1,800 (computed) |
| 9 | Line 3 divided by line 8 (computed) | 0.833 |
| 10 | Line 4 times line 9 (computed): basis allocated, tax free | $708.05 (computed) |
| 11 | Line 4 minus line 10 (computed) | $141.95 (computed) |
| 12 | Line 5 divided by line 4 (computed) | 0.824 |
| 13 | Line 11 times line 12 (computed): expenses allocated, tax free | $116.97 (computed) |
| 14 | Line 11 minus line 13 (computed): include in income | $24.98 (computed) |
| 15 | Line 3 minus line 10 (computed): basis left | $791.95 (computed) |
| 16 | Taxable amount, all accounts | $24.98 |
The worksheet rounds its two ratios to three places, so the result is $24.98 rather than the whole-dollar $25 the publication prints from its steps. The two methods agree to the dollar once the worksheet result is rounded.
Edition
This page reads Publication 970 (2025), Tax Benefits for Education, the file irs.gov served on 2026-10-29 (sha256 in the kit data). Line numbers and letters belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference.
Common mistakes
- Putting the whole distribution on Schedule 1. Only the part left after basis and AQEE is taxable.
- Forgetting to subtract tax-free scholarships and expenses used for a credit or deduction before comparing with distributions.
- Completing Part II once for all accounts. Each Coverdell ESA gets its own Part II; only Parts I and III are done once.
- Skipping line 15. The basis left at year end is the starting basis on next year’s sheet.
Related: the Coverdell ESA contribution limit worksheet, 1099-Q boxes 1 to 3, and the 1099-Q boxes.
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Answer againSources
- Publication 970 (2025), Tax Benefits for Education: https://www.irs.gov/pub/irs-pdf/p970.pdf
- Schedule 1 (Form 1040) 2025, Additional Income and Adjustments to Income: https://www.irs.gov/pub/irs-pdf/f1040s1.pdf
Read from the IRS documents linked above on October 29, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.