1099-MISC form received for student loan repayment

[JocelynR30]

This is my first time handling this so I want to make sure things are submitted properly.

I received a 1099- MISC form for the loans that were paid out for my college degree. The loan repayment is listed in box 3 which is under "other income". I know this is definitely not taxable as the listed quantity was to pay the loan balance to my lender once I graduated. I know the 1099-MISC is considered as income from a personal business but I never even saw this money. The foundation that gave me the grant arranged a call with me and my lender to which they sent a check in order to pay off the loan balance. How do I go about reporting this? Do I need to provide proof of my loan balance from my lender's account portal?

[Carl]

I received a 1099- MISC form for the loans that were paid out for my college degree.

That's where you're wrong. THe 1099-MISC is *NOT* for money you borrowed. Borrowed money is not your money. Never was, is not now and it never will be. Not ever.

The 1099-MISC is for the *GRANT* that the foundation (whatever foundation that is) gave to you for your qualified education expenses. It has NOTHING what-so-ever to do with a loan of any type.  Handling this in TurboTax is easy.

First, you'll enter the 1099-MISC to report it as income.

Second, you'll enter it as a scholarship/grant in the education section (assuming it is *NOT* included in box 1 of your 1098-T if you recevied a 1098-T from the college.)  Then the program will ask you if any of the scholarship/grant money you received *AND* reported in the education section was reported to you on any other form such as a W-2 or 1099-MISC. You'll answer that question YES, then enter the amount reported on the 1099-MISC so that it won't be double-counted.

Reporting 1099-MISC box 3 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.

When you get to the education section, if that 1099-MISC money is included in box 5 of the 1098-T, you will *NOT* enter it again in the education section.

If that 1099-MISC money is *NOT* included in box 5 of the 1098-T then you *WILL* enter it in the education section as a scholarship.

Then you'll come to the below screen where you'll select the *YES* option and continue.

[Hal_Al]

Who/what is the foundation? And why are they paying off your loan?  That determines whether it gets entered as "other income" or  as "scholarship", and whether it is taxable.

I disagree with the other reply. You do not enter it at both the 1099-Misc screen and again at the education section, as scholarship.  It will get double taxed, if you do. 

I also disagree with your conclusion that you "know this is definitely not taxable".  It's not definite. Anything on a 1099-Misc is  always taxable, unless the 1099-Misc was issued in error.  Scholarships  are not supposed to be reported on a 1099-Misc.  Tax free scholarships must be used to pay for qualified expenses (tuition).  Repayment of a loan, even a loan used for tuition, is not a qualified expense. 

It usually doesn't matter if the income is reported as other income or scholarship, unless you are a dependent, on someone else's tax return. 

There's another issue.  While you were going to school, were either you or your parents claiming a tuition credit, based on the expenses that were being paid with your loan money?

[Carl]

@Hal_Al upon re-reading the original post, I now think they received a grant to use for paying off or paying down the loan, not a grant for qualified education expenses. If so, that makes the entire amount of the grant taxable income because it was not used for qualified education expenses. The only  deductible amount would be the interest portion included on the 1098-E. But since that's a SCH A deduction it will probably make no difference to their tax liability.