Do I have to report my son's scholarship money? One of the scholarships mailed him a Form 1099-NEC (Nonemployee Compensation)

[ThomasM125]

Your son does need to report the form 1099-NEC on his tax return. However, this form is used to report self-employment income. He must have provided services to earn that money. You enter it in Income and Expenses and then Self-employment income and expenses.

[Hal_Al]

No. 

You do not report his income on your return. If it has to be reported, at all, it goes on his own return. If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2020 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,400 (2020).
2.          Unearned income (interest, dividends, capital gains) of more than $1100.
3.          Unearned income over $350 and gross income of more than $1100
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2100 ($12.400 if under age 18)
5.          Other self employment income over $432, including money on a form 1099-NEC

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.

Now for a new issue: why is scholarship being reported on a 1099-NEC?  The IRS considers anything on a form 1099-NEC to be self employment income and it normally should be entered as such, in TurboTax (TT) and on his tax return.  If it is not self employment. it will take a work around in TT to enter it as something else. 

[taxrookie999]

If it is not self employment, How do you do a work around in TT to enter it as something else?

[Hal_Al]

@taxrookie999 

Duplicate post. See https://ttlc.intuit.com/community/taxes/discussion/1099-nec-scholarship/01/2877783/highlight/false#M...

We need to know a little more.  Is the recipient somebody else's dependent (e.g. yours)?  Why did he get this "scholarship"? What makes it a scholarship and not something else.  Who paid the scholarship and why. Why did they issue a 1099-NEC.

It's an easy work around to enter a 1099-NEC as Misc (other) Income)* 

After entering your 1099-NEC, you will encounter a screen titled "Does one of these uncommon situations apply".  Check the box "This is not money earned as an employee or self employed individual; it is from sporadic activity or hobby".

Checking that box will put the income on line 8z of Schedule 1 as "other income" and identify it as coming from a 1099-NEC.  It is treated as unearned income. 

 Entering it as scholarship is trickier. Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the  $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400)..  It is not earned income for the kiddie tax and other purposes (EIC. IRA contributions or additional child tax credit).