How to report 1099-NEC for travel stipend received as a college student?

[bpm25]

In 2024, I participated in a summer language program at a university overseas through my college in the U.S. My college provided a $3,000 travel stipend and I received a 1099-NEC. My actual travel expense was around $2,700. My parents paid for the language program tuition. However, I was able to receive credits towards my degree by testing out of a language class after returning to the U.S. I have also received a 1098-T for qualified tuition and related expenses (a separate amount, not including the amount on the 1099-NEC) from the college in the U.S. I have no earned income in 2024 but have a small amount of unearned income from a different source.

My parents claim me as their dependent and AOTC (without including the language program tuition) but I am puzzled about how to report the 1099-NEC on my tax return. Here are my questions:

1) How to determine if the travel stipend is scholarship or not? It was labeled as "travel stipend" on the statement I received from my college but I do have to apply to get it.
2) If I follow the steps to report it as scholarship and fellowship grants not reported on W2 (amount shown on schedule 1, line 8r), do I still need to enter the amount from 1098-T on my return, even though my parents have already entered the 1098-T on their return?
3) If the travel stipend is not considered a scholarship, does it automatically become taxable unearned income? I would then report it under the 1099-NEC section as “not money earned as an employee or self-employed individual” (amount shown on schedule 1, line 8z). I am being taxed at a substantial higher rate if I report it this way. Somehow my standard deduction was only $1,300 so it resulted in a much higher taxable income. I am questioning if I've entered everything correctly.
4) Am I subject to the kiddie tax regardless of which way I report it?

A step-by-step tip/instruction on how to enter into TurboTax will be very much appreciated.

[Hal_Al]

Q1) How to determine if the travel stipend is scholarship or not? It was labeled as "travel stipend" on the statement I received from my college but I do have to apply to get it?

A1). There are no firm rules. The usual rule is "stipend" is reported as taxable scholarship. The school should not have issued a 1099-NEC (that's the worst way to report it).

Q2) If I follow the steps to report it as scholarship and fellowship grants not reported on W2 (amount shown on schedule 1, line 8r), do I still need to enter the amount from 1098-T on my return, even though my parents have already entered the 1098-T on their return?

Q2). No. Entering the  1098-T, on you return, is not recommended.  Schedule 1, line 8r is the correct place to report the income. See below, for how. 

Q3) If the travel stipend is not considered a scholarship, does it automatically become taxable unearned income?

A3). No, it's not automatic.  Schedule 1, line 8z is unearned income. Schedule C is an alternate way to report it and would be earned income, subject to Self employment tax, but open to deducting expenses (which may have been the reason for reporting it on a 1099-NEC, but still wrong)
Q4) Am I subject to the kiddie tax regardless of which way I report it?

A4).  Yes (unless you use Schedule C). But, 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).  

Q5) A step-by-step tip/instruction on how to enter into TurboTax will be very much appreciated.

A5). Enter at Educational Expenses and Scholarships, under Deductions and credits (not the income section).

After answering no to having a 1098-T*, answer yes to qualifying for an exception (that gets you to the entry screens). You will have to go thru the whole education interview to get to the scholarship screen. At the scholarship screen, enter the amount of the grant. When asked if any was used for room and board, answer yes. Then enter the amount you want to be taxable (usually all of it), in the pop up box. R&B are not "qualified educational  expenses".  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put it on line 8r of Schedule 1.

*If you do have a 1098-T, one of the follow-up questions will be do you have any scholarships not shown on the 1098-T. Enter the additional scholarship/stipend there.  But, since your parents are claiming the 1098-T, actually entering the 1098-T, on your return, can get messy (theoretically TurboTax can handle it)

[Hal_Al]

Q1) How to determine if the travel stipend is scholarship or not? It was labeled as "travel stipend" on the statement I received from my college but I do have to apply to get it?

A1). There are no firm rules. The usual rule is "stipend" is reported as taxable scholarship. The school should not have issued a 1099-NEC (that's the worst way to report it).

Q2) If I follow the steps to report it as scholarship and fellowship grants not reported on W2 (amount shown on schedule 1, line 8r), do I still need to enter the amount from 1098-T on my return, even though my parents have already entered the 1098-T on their return?

Q2). No. Entering the  1098-T, on you return, is not recommended.  Schedule 1, line 8r is the correct place to report the income. See below, for how. 

Q3) If the travel stipend is not considered a scholarship, does it automatically become taxable unearned income?

A3). No, it's not automatic.  Schedule 1, line 8z is unearned income. Schedule C is an alternate way to report it and would be earned income, subject to Self employment tax, but open to deducting expenses (which may have been the reason for reporting it on a 1099-NEC, but still wrong)
Q4) Am I subject to the kiddie tax regardless of which way I report it?

A4).  Yes (unless you use Schedule C). But, 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).  

Q5) A step-by-step tip/instruction on how to enter into TurboTax will be very much appreciated.

A5). Enter at Educational Expenses and Scholarships, under Deductions and credits (not the income section).

After answering no to having a 1098-T*, answer yes to qualifying for an exception (that gets you to the entry screens). You will have to go thru the whole education interview to get to the scholarship screen. At the scholarship screen, enter the amount of the grant. When asked if any was used for room and board, answer yes. Then enter the amount you want to be taxable (usually all of it), in the pop up box. R&B are not "qualified educational  expenses".  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put it on line 8r of Schedule 1.

*If you do have a 1098-T, one of the follow-up questions will be do you have any scholarships not shown on the 1098-T. Enter the additional scholarship/stipend there.  But, since your parents are claiming the 1098-T, actually entering the 1098-T, on your return, can get messy (theoretically TurboTax can handle it)

[bpm25]

@Hal_Al 

Thank you very much for the detailed response.

I have a few follow-up questions while entering data into the Education Expenses and Scholarships section. After selecting “No” to “Did You get a 1098-T for the year and checked “I qualify for an exception”, TurboTax is asking:

1) Where I went to school and the school address. Do I provide the school’s name here? Also, my school uses a different address on 1098-T vs 1099-NEC so which address do I use? Or do I need to find my school’s mailing address for this purpose?

2) “Enter the Amount paid to the university in 2024”. Should I enter zero here since I have selected “No” to receiving 1098-T or do I need to enter the 1098-T amount here?

3) “Was any of the scholarship income not designated to pay 2024 education expenses”? Should I select “Yes” or “No” here?

I am thinking “No”, is this correct? Looks like either way I select, TT takes me to the next screen asking “Did you pay for room and board with scholarship or grant” page. I then enter the amount per your instruction above.

4) “Did You Ever Receive the American Opportunity or Hope Credit”: Do I answer “Yes” and provide the number of years here even though my parents have been claiming AOTC on their returns?

Also, is there anywhere in TT that I can indicate the stipend came from a 1099-NEC? I am a little concerned since my school is furnishing the 1099-NEC to IRS, and I did not report it as a 1099-NEC income, rather as a scholarship, therefore resulting in a document matching error. Will I get into trouble with the IRS? Is there any way to prevent the document matching error?

[Hal_Al]

Q1) Do I provide the school’s name here? Also, my school uses a different address on 1098-T vs 1099-NEC so which address do I use?

A1). Yes, enter the school name and 1098-T address.

Q2) “Enter the Amount paid to the university in 2024”. Should I enter zero here since I have selected “No” to receiving 1098-T or do I need to enter the 1098-T amount here?

A2) Leave it blank

Q3) “Was any of the scholarship income not designated to pay 2024 education expenses”? Should I select “Yes” or “No” here?

A3). Skip it if you can. Answer no, otherwise. All you need to do is get to the scholarship screen. Skip everything else

Q4) “Did You Ever Receive the American Opportunity or Hope Credit”: Do I answer “Yes” and provide the number of years here even though my parents have been claiming AOTC on their returns?

A4) Skip or answer no. 

Q5) Also, is there anywhere in TT that I can indicate the stipend came from a 1099-NEC? Will I get into trouble with the IRS? Is there any way to prevent the document matching error?

A5) Yes, but it's messy. See below. The fact that the 1099-NEC amount shows up on the forms should be enough to keep the IRS at bay. Yours is a common situation. 

If you received an erroneous 1099-Misc or 1099-NEC

Report the income as misc line 8z, Schedule 1 income  (enter in TurboTax at the 1099-NEC screen and identify it as sporadic income ["did not involve intent to earn money"]).

Then enter a line 8z deduction, for the same amount.  In TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
Scroll down to:
-Less Common Income
      -Misc Income, 1099-A, 1099-C
       - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description. Call it  Scholarship income reported on line 8r, Sch 1

[bpm25]

@Hal_Al 

Thank you again!

I was able to enter everything related to the 1099-NEC accordingly, including line 8z schedule 1 income and deduction. TT produced an extra statement containing the following description and amount:
- Nonemployee compensation from 1099-NEC     3,000

- Scholarship income reported on line 8r, Sch1    -3,000

And on schedule 1, line 8z, there is a zero dollar amount, and a description "See Stmt". I just need to include the extra statement produced by TT with my return, correct?

Also question re. form 8615. TT automatically produced this form and is asking for my parents information (name, filing status, taxable income, etc.). Do I have to include their information on this form? I can't pass the federal review without providing my parents information but I don't know much about their tax situation except that they claim me and the AOTC. How to bypass this step if I don't have their information?

[Hal_Al]

Q. And on schedule 1, line 8z, there is a zero dollar amount, and a description "See Stmt". I just need to include the extra statement produced by TT with my return, correct?

A. Yes. That happens automatically if you e-file from TT. 

Q. Also question re. form 8615. How to bypass this step if I don't have their information?

A. You can't .  You get the info  from them or you guess at the numbers. All you need is enough to get their marginal tax rate. Technically, if you can't get that info, you are suppose to go thru a big rigmarole to get it from the IRS.