Taxes can get really confusing. The general rule is this: if goods or money (or a cash equivalent) is paid for services performed, it is earned income. As just one example of how confusing it can be, taxable scholarships are considered by the IRS in one situation to be earned income (when determining the standard deduction), and yet in another situation the IRS considers taxable scholarships to be unearned income (the kiddie tax/Form 8615).
There can be a situation where unearned income is reported on a 1099-MISC; for example, a prize or award that’s not a scholarship might be reported in Box 3 of a 1099-MISC. But I can’t think of any situation where something received in exchange for personal services would ever be classified as unearned income.
Wow! @CharlotteLetter, so many pages of discussing the Box 7/Box 3 issue on the other thread…
How can this be this be so complicated? So many students get this kind of stipend and they can’t afford tax consultant. Why can’t IRS make this simple? How can there be so many interpretations where it can be 0 tax up to close to $700?
Almost all the people commented here and on the the thread @CharlotteLetter mentioned seem to know what they are talking about. So which is it?
1099-Misc Box 7 – Summer science research stipend – earned or unearned income?
Schedule C with self employment category or below $6350 and 0 tax?
We / Our daughter wants to do the right thing and file it. I guess I will read through the entire thread @CharlotteLetter mentioned
This is clearly payment for services performed, which makes it earned income. As was previously pointed out to you, the IRS says the following:
Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2.
If the above description matches your daughter’s situation, you might consider making a request to the university where she did the research that they issue a W-2 for the stipend payment received and coincidently issue a corrected 1099-MISC showing $0 in box 7. Good luck with that (sarcasm).
If the university won’t budge, and since it’s earned income from which FICA was not withheld, in my opinion at the very least your daughter should file a tax return reporting the income and paying the self-employment (FICA) tax.
1099-Misc Box 7 – Summer science research stipend – earned
below $6350 and 0 tax
the above are the correct answers.
"If it’s self-employment income "
she was NOT self employed.
she will NOT have to pay INCOME TAXES.
however, if the university did not deduct FICA from the stipend then she may have to pay the very small amount owing.
have your DD check with the university- some do have a tendency to screw things when it comes to internships as you noted above.
and can she check to see if her deposits totaled 4500, or slightly less?
If less they probably did deduct FICA, so she is in the clear.
^^^
If FICA was deducted, that would be reported on a W-2. There was no W-2, so it’s very unlikely there was any FICA deduction.
Whether or not a wage earner is self-employed depends on the totality of the circumstances. A taxpayer can be performing services under the direction of someone else and still be self-employed.
"A taxpayer can be performing services under the direction of someone else and still be self-employed. "
that’s true , but it is NOT the case with Amgen Scholars! They are NOT self employed!
8-|
as I mentioned before, my DS, was paid by USC to do summer research. it amounted to 4500 and he did NOT have to file with the iRS as self-employed.
Both my hubby and I ARE self employed and have done our own taxes for 40+ years.
No argument from me here; the part of my post that you quoted is a general statement. It sounds like the university should have reported the income on a W-2, as the IRS directs in the 1099-MISC instructions.
and as I said earlier, Universities have a tendency to screw things up when it comes to summer research stipends.
she should call the U and ask them refile. but good luck with that. …
Thank you @menloparkmom and @BelknapPoint. The university deposited $4500 in her account. They didn’t take any FICA. Their website clearly states for $500 meal allowance and $4000 stipend for the Amgen Scholars. No, the University will not refile. So no W-2, and only the 1099-Misc with box 7 showing $4500.
So how can she calculate FICA and just pay that?
The two calculations we did were schedule C (self empoyed)- $648 tax, and other one with miscellaneous income in line 21 of Form 1040 which added Kiddie tax and the total tax was more than $648.
It’s not unearned income; the kiddie tax does not apply. If her only income for the tax year was $4,500, the standard deduction for a single dependent should bring her taxable income (form 1040 line 43) to $0. How are you getting $648?
The FICA tax owed from schedule SE (yes, I understand she wasn’t really self-employed) would be $636 on form 1040 line 57. Normally she could take advantage of a deduction equal to half of the SE tax amount, but because the standard deduction is already more than her AGI, that won’t do anything for her.
Note that if the stipend work was done for her university, there could be a reasonable argument made that FICA is not owed at all. This is another area where the IRS has generated much confusion.
I think (and I’m a 17-yo kid, so take my opinions with a grain of salt) that if it’s box 7 it’s definitely earned income. It doesn’t matter if she was actually self-employed (I wasn’t either). If the employer didn’t deduct payroll taxes (FICA), then the responsibility falls to her (essentially what SE tax is). So assuming she doesn’t deduct any expenses, her SE tax will be 4500.9235.153 = 636.
However, if she wants to file it as unearned and ends up paying extra tax via the Kiddie tax, I doubt the IRS will object. If your income bracket is 25% or higher than she would pay much much more (e.g. if you’re at 33% she would pay nearly double).
FYI H&R Block allows both, and probably more, versions of filing it.
If a Free File option won’t allow schedule C, it’s probably either because the user has chosen to file using a 1040A or 1040EZ, or the Free File provider simply doesn’t offer anything but basic tax work.
