Student Teaching 1099-Misc Box 3 - Dependent

[BobY]

My 21 year old daughter lives at home and is a full time student. She received an academic scholarship in 2018 for most of her expenses and we took the deduction for books, etc. on me and my wife's taxes as she is our dependent. We already filed for 2018. 

The only income my daughter had in 2018 was a very small W-2 for substitute teaching (under $500) and a stipend she earned through the State for student teaching for high needs children. The conditions of the stipend were that the student must be enrolled in a college program and perform student teaching duties (traveling to local k-5 and special needs schools). The amount of this stipend was $4000 and she received a 1099-MISC with the income showing in Box 3.

When I tried to do her taxes this of course shows up as self employment income. I have walked through the other steps others had mentioned to show it as other income. It shows her as owing $310 for Federal and some for State. For some reason Turbo Tax is not taking this $4000 as part of her income which is used to figure her exemptions. Is this considered earned income to be used on this calculation? If so technically would she even have to file a tax return due to the dollar amount? If it is considered unearned then are the calculations above correct? 

[Carl]

and a stipend she earned through the State for student teaching for high needs children.

Yes, that is considered self-employment income in her case because she actually went out and "did something" on a recurring basis to actually "earn" it.

"The conditions of the stipend "

Doesn't matter, because the conditions of the stipend was not a requirement of the college in order for her to obtain a degree or credentialed certification either. It also doesn't fall into any internship requirements necessary for the degree or credentialed certification she may be working towards.

Basically, it is self-employment income. Since it was more than $400 she is required to file a tax return and report it on SCH C as a part of her personal 1040 tax return.

"Turbo Tax is not taking this $4000 as part of her income which is used to figure her exemptions"

Exemptions don't exist anymore. All she gets if filing single is the $12K standard deduction, and that's it. But she will still pay the 15.3% of self-employment on the amount of "taxable" business income over $400. No way around that.

[BobY]

Thank You for the quick reply.. 

The student teaching aspect is actually required for her degree. The purpose of the stipend was to help offset the cost associated with this. There was an application process to obtain this and not all students received it. Was confused as if it was ore of a scholarship?  Does that change anything? 

[Carl]

Keep all paperwork supporting your claim, in case you're ever audited on it. Then enter the 1099-MISC following the below guidance on the tax return of the recipient designated on the 1099-MISC.  It's taxability will be offset later, based on the "qualified" education expenses the income was used to pay for. If your daughter is your dependent, then most likely she won't have any qualified education expenses, as you the parent claim all that. This stipend does not count as a scholarship or grant, so it's payment does not have the potential to make her 3rd party income exceed the qualified education expenses.

But she should still work through the education section anyway, because I've just got a funny feeling I'm missing something here that will probably jump out and bite your daughter when working through that section.

Reporting 1099-MISC (box 3 or box 7) that is not self-employment income

Under the Wages & Income tab (or Personal Income tab) scroll down to Other Common Income and elect to start/update Income from form 1099-MISC. Then click YES to indicate you have a 1099-MISC.

Enter the 1099-MISC exactly as printed, and then Continue.

Enter the reason you got this money – be it scholarship, bonus, streaking butt naked across the 50 yard line of the super bowl, whatever. Then continue.

Select None of these apply, then Continue.

Select No, it didn’t involve work….. and Continue.

Select ONLY the tax year for which this specific 1099-MISC was issued. Do not select the year that you received the 1099. Select the year for which the 1099-MISC was issued. Select no other year. Then Continue.

Select No, it didn’t involve an intent to earn money, then Continue.

Select NO, then Continue.

Click the DONE button, and that does it.