I have never dealt with this but it seems that form 1099 misc box 3 (other income) has the potential to be treated differently than box 7 (self employment income).
Yes, the earned/unearned dilemma when it comes to taxable scholarships and kiddie tax is confusing.
You can look form 8615 up on the internet.
I don’t know why the calculation is the way it is.
Did you do a preview of the tax return and see what forms are generated?
@BelknapPoint & @twoinanddone – THANK YOU both!
I have tried responding with quotes and have made a royal mess of it, so have deleted and will just respond here.
In summary, kiddie tax will not come into play, but SE tax may be due, and no one is really certain about the answer to that one.
I don’t know to determine the university’s intent, but students were told that no housing or food would be provided and that the stipend was meant to cover their living expenses during the course of summer research. Each student had to find own off-campus housing.
Manually adding the $4400 stipend to line 1 of 1040 and deleting the 1099-MISC section should result in the stipend amount falling under the standard deduction. (I haven’t tried, but have seen others mention the approach elsewhere.)
My first run through TT resulted in SE tax, so I called TurboTax help, where a very nice and very helpful tax agent (not tech support) tried to walk through it with me. She didn’t think SE tax should apply, and suggested a workaround, but the workaround resulted in application of kiddie tax, or some variation of kiddie tax.
@BelknapPoint – $4400 stipend. Now that you have explained it, I do recall seeing $2200 on the Form 8615 worksheet, but had no idea what it represented since it did not appear to carry over to Form 8615 L7-Line 7 Tax Computation Worksheet.
$4400 less $2200 = $2200, which should be taxed at 10% if using estate tax rates, so no explanation where $405 came from.
@twoinanddone – No FAFSA, but I was going to have him file to document a small Roth contribution (against his W-2 earnings). I know that is not required and he could just use the Form 5498 as a record instead, but since the school issued a 1099, I thought he should file.
WHAT A MESS!
Thank you, again.
If the 1099-MISC amount is a scholarship meant to be a housing stipend, there should be no tax owed (even SE tax). If the 1099-MISC amount is wages for personal services, SE tax is probabkly owed. I would contact the school and ask what their understanding is concerning the $4,400 payment reported on the 1099-MISC.
“In summary, kiddie tax will not come into play”
While true at a federal level, kiddie taxes may still come into play for state tax in states that have not conformed to the new $12K standard deduction.
Our D would have owed CA taxes at her parents’ marginal rate on her room and board scholarship if she had not become resident in the (conforming) state where she attends college. The trade off was loss of the federal $500 dependent tax credit.
They must be treating the $4,400 as unearned income.
($1,200+4,400=$5,600 minus standard deduction which they must have calculated as $1,550 ($1,200+$350), so that would be $4,050.
That is then taxed at 10%
If your son received a 1099-Misc with the non employee compensation box checked, and the amount earned is $600 or more , he must file a Schedule C and pay Social security tax… he can also deduct expenses incurred in earning this money on that Schedule
It seems to me that no tax is owed because the standard deduction is more than his earnings.
Thanks. I think that is a good idea, however, I am fairly confident that my son won’t get anywhere contacting the school, but I will ask him to do so. I anticipate one of those ‘consult your accountant’ responses, but hopefully I will be surprised!
Thanks. I have not looked at CT yet, but when older son earned W-2 wages higher than this child’s stipend & TA wages, he did not pay CT tax. TT was not indicating a CT tax liability, but good to point that out in case anyone else ever plods through this thread.
What tax chart do you think TT is using? The single one where 10% tax is due on the first $9700 of income?
Interesting; I did not know that. I have never looked at interest & dividend income as my children only maintain bank accounts with modest balances, so no interest earnings.
Thanks, yes, there are many forms generated. And the forms that are generated seem to change based on how I answer the interview questions posed by TT. The trouble is, the questions really do not apply to research stipend earnings.
This is what I wrote above about the interview questions:
I entered it under ‘1099 MISC and Other Common Income’. The TT interview prompts me to enter the university name, amount in box 3, etc, and then goes on to ask other questions about the source of the earnings. Research never comes up as an option, but instead the options are farm rental income, prize winnings, lawsuit, tribal gaming, or none of the above.
If I answer one way, it generates SE tax forms; if I answer another way, it generates kiddie tax forms. The questions do not accurately reflect the earnings.
Thanks!
Ask the school if they consider the $4,400 they paid to be a scholarship/grant/fellowship, yes or no.
If no, ask the school if they consider the $4,400 they paid to be wages for services performed, yes or no.
If no, ask the school how the heck they classify the $4,400 that they gave to your son.
The first two questions are straightforward and should be easy to answer. If you get to the third question, all bets are off.
The stub attached to the check names the program 2019 Fellowship. The letter that accompanied the 1099 says Enclosed is your 1099-MISC, Miscellaneous Income Statement (last three words italicized). They provide contact info, so I will have him reach out.
Does the use of the word Fellowship on the pay stub suggest one direction or the other? I will have him ask either way.
Yes; to me, this suggests that the payment is a taxable fellowship, which is treated the same way as a taxable scholarship (basically different words for the same thing, tax-wise). As noted above, this is considered earned income when calculating your son’s standard deduction. Based on the numbers you have provided, this means that there is no requirement to file a federal tax return.
Thanks @thumper1, Basically i’m also dont know. now i know about form 1099 misc
Can anyone say about From 1099 NEC?
Thank you @BelknapPoint I have also found the information on Form 1099 Online website. They cleared my doubts.