College Grant reported on a 1099-NEC

[DC83]

I'm doing taxes for my son.  Full time college student.  Received a grant from his primary school (Harvard University) to take summer courses at another school (Middlebury College).  This Grant was reported on a 1099-NEC.  When I fill out the information requested on TurboTax Deluxe, this leads to a ton of questions about self-employment taxes, which have nothing to do with the Grant money or how it was spent.  The total was $7500, of which $5,000 was paid directly to tuition and the rest for expenses and room and board.  Is there a better way to report this?

[Cynthiad66]

The 1099-NEC instructions specifically say:

https://www.irs.gov/pub/irs-pdf/i1099mec.pdf

Scholarships. Do not use Form 1099-NEC 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. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported to the IRS on any form, unless section 6050S requires reporting of such amounts by an educational institution on Form 1098-T, Tuition Statement. See section 117(b)–(d) and Regulations section 1.6041-3(n) for more information.

You should contact the issuer for an explanation.

Was your son required to perform any services as a condition of receiving the grant?  If so, that is why he received a form 1099NEC.

Or

To keep things simple, you can prepare the Schedule C using the Form 1099 NEC as income and deduct the expenses, including the tuition and other expenses up to income.  However, you will have to upgrade software as Turbotax Deluxe will not accommodate Schedule C

Beginning with tax year 2020, the IRS will require your self-employment income of $600 or more to be reported on Form 1099-NEC (non-employee compensation) instead of Form 1099-MISC.

The IRS explains that if the following four conditions below are met, then the payments must be reported as non-employee compensation: 

1. The payment was made to someone who is not an employee
2. The payment was for services in the course of trade or business (including government agencies and nonprofit organizations)
3. The payment was made to an individual, partnership, estate, or maybe a corporation
4. The payments to a person totaled $600 or more during the year 

 Also, a business may need to file a Form 1099-NEC if they withheld federal income tax under backup withholding rules even if the amount if less than $600.

[Hal_Al]

The IRS considers anything on a 1099-NEC to be self employment income. TurboTax (TT) aggressively steers you in that direction. If you try reporting 1099-NEC income as anything else, you chances of hearing from the IRS are  high.

If he did not do some kind of work for this grant, it would appear the 1099-NEC was issued in error. 

If you received an erroneous 1099-NEC, you have several choices:

1. Ideally, you get a corrected 1099-NEC from the payer
2. Report it on your return, in the proper place  and attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. 
3. Report the Income on schedule C and take a deduction under other expenses, call it something like "Income reported as scholarship". Enter the scholarship income at the proper place
4. Do nothing (other than reporting the income properly) and hope you can explain it away when & if the IRS contacts you

Assuming Scholarship is the right classification for the income, do not enter in the income section of TT. Instead, In TurboTax (TT), enter at:

Federal Taxes Tab (Personal for H&B version)

Deductions & Credits

-Scroll down to:

--Education

  --Education Expenses

You will quickly reach a screen to enter scholarships, not shown on the 1098-T.

If Middlebury issued a 1098-T and already included the $5000 in their box 5, do not duplicate the entry. 

Any portion that TT determines to be taxable will be entered on line 1 of form 1040 with the notation SCH.