DEPENDENT

[A-LO]

My college student is my dependent, we provide more than half of his support, he had a W2 job and made about $12000, he also received a $1000 scholarship and was given a 1099NEC for it, he also has a 1098T form from his college that we, parents, paid for tuition, which accounted for $$11000, is he required to file taxes? Can I claim him on my personal taxes to benefit from the tuition paid?

[Vanessa A]

Yes.  You can claim him on your personal taxes (assuming he is under 24) and claim the education credits if you qualify. 

Technically, he should not have to file a return since his income is under the standard deduction, unless he performed services for the scholarship. If he did not perform services for the scholarship, then it should not have been reported on the 1099-NEC as this is only meant for self-employment.  You can contact the issuer to get it corrected.  If they do not correct it, since it is over the $400 threshold, you would technically need to file a return for just that reason.  If they do correct it, then you would not need to file a return for your son.

If you do have to file and include the 1099-NEC, you can enter it and then back out the income.  If you enter it as self-employment, you will need to upgrade to TurboTax Premium or Home and Business, so the better way to enter it would be by taking the following steps:

To enter the 1099 NEC as non-self-employment income take the following steps:

• Income
• 1099-NEC under Other Common Income
• Enter the information from the 1099-NEC
• Continue through and say the work this is a hobby activity
• continue through

Then you will take the following steps to remove the income:

• Income
• Less Common Income
• Miscellaneous Income
• Other Reportable Income
• Answer Yes to Any Other Taxable Income
• Enter the description such as 1099-NEC received for Scholarship income erroneously reported on 1099-NEC
• Enter the amount on the 1099-NEC as a negative number. 

If he DID perform services to receive this, he WILL need to include it on Schedule C as self-employment income and file a return as it is over the $400 threshold. 

[Hal_Al]

Q. Can I claim him on my personal taxes to benefit from the tuition paid?

A. Yes. None of that changes the fact that he is your "Qualifying Child" dependent.  There is an income limit for claiming the tuition credit ($90K, $180K married).

Q. Is he required to file taxes?

A.   @Vanessa A  answer is correct. and as you can see, it's complicated, very complicated. 

He would not have to file , except for that erroneous 1099-NEC.  A work scholarship is taxable, but it is not self employment.  If you received an erroneous 1099, you have several choices:

1. Ideally, you get a corrected 1099-NEC from the payer
2. Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the old IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
3. Follow Vanessa's instructions for entering it and then subtracting it out.
4. Enter it as scholarship. Don't enter it at the 1099-NEC screen.  When asked, in the 1098-T interview if there were any scholarships not reported on the 1098-T, answer yes. Enter the $1000 there. 
5. Enter the 1099-NEC. At the screen, "Does one of these uncommon situations apply?", answer "this is not money earned as an employee or self employed person......". This reports it as unearned income. That's not a problem in your case, since it's less than $1300 (the kiddie tax threshold). 
6. Do nothing and hope you can explain it away when & if the IRS contacts you

I would do #6.  That gets you you out of having to file.  #5 would be my 2nd choice. 

[A-LO]

My son did not perform any services for the scholarship, he wrote an essay and was picked out of a group of other students. The issuer is not correcting the form, so when entering the 1099NEC is having us fill out a Schedule C and enter the business activity and code which is none, is there a way to get away with the schedule c?

[Vanessa A]

After you enter the 1099-NEC select this is not money earned as an employee or self-employed individual.  It is from a sporadic activity or hobby. 

This will remove it from self-employment income and just have it taxed as ordinary income.

[Hal_Al]

@A-LO 

I agree with VanessaA, that is the easiest way to enter it in  your situation (the stipend is less than $1300 and his total income does not meet the filing threshold). It gets identified as 1099-NEC income but not self employment. 

For others reading this: be advised, stipend income is best reported as scholarship income. 

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.