My college Jr. was paid $4400 for a summer research stipend. He also earned $1200 as a TA during the school year. He received a 1099-MISC with $4400 reported as Other Income in box 3, and a W-2 for the $1200 paid weekly by payroll. No taxes were withheld from the lump sum stipend or his weekly pay checks. I cannot remember where I read it, but apparently universities do not need to pay or collect and remit FICA on behalf of student hires, which explains why his TA W-2 earnings did not have anything withheld. I understand why he does not owe Fed taxes on the $1200 in W-2 earnings.
I have gone around in circles reading TurboTax ‘solutions’ and old threads here on CC, but I am still not certain that I understand this, or that TT has calculated correctly.
My first run through resulted in SE tax. I deleted the 1099-MISC entry, re-entered all of the figures but perhaps with more accurate responses, resulting in a tax liability of $405 instead of the $620+ that was produced by the SE tax calculation.
Based on the Tax Summary worksheet, it appears that TT has calculated his standard deduction as the sum of his W-2 income & the $350 exemption of the kiddie tax calculation, so $4400 - $350 = $4050 of ‘taxable earnings’. This appears to be a flat 10% tax, but I thought the Trusts & Estate rates were 10% of 1st $2600, and then 24% of the balance of $1450, or $608 total.
I read this thread, but it discusses box 7 instead of box 3.
Someone on the TT Solutions page suggested a workaround that requires one to enter the stipend amount as negative under Other Income, but that seems suspect.
Any thoughts or idea why TT has calculated the tax liability as 10% of the stipend amount less the $350 exemption? As many others posted on the older thread, if this money had been reported as W-2 income, no tax would be due. I want to understand and do what is correct.
Thanks!