My daughter age 18 got a 1099-misc (box 7) $1,000 college scholarship. She has no other income. How do I input her 1099 on my (parent) tax return which has the 1098-T.

[Hal_Al]

Scholarships are not reported on a 1099-Misc, particularly in box 7. Box 3 of a 1099-Misc would be more appropriate, but still technically incorrect.

What were the circumstances of her getting this "scholarship" and 1099-misc?

The IRS considers anything in box 7 of 1099-MISC to be self employment income and subject  self employment tax (social security & Medicare), in addition to income tax.  If you try reporting box 7 income as anything else, you chances of hearing from the IRS are high.

It cannot go on your return. If it goes anywhere, it goes on her return. 

[Hal_Al]

It cannot go on your return. If it goes anywhere, it goes on her return. 

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

1. Ideally, you get a corrected 1099-misc 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 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. Report the Income on schedule C and take a deduction under other expenses, call it something like "nominee recipient adjustment"
4. Report the income as misc line 8, Schedule 1 income (enter in TurboTax at the 1099-Misc screen) .  Then enter a line 8 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.
5. Do nothing and hope you can explain it away when & if the IRS contacts you

[toddhmcintosh]

It was an awarded college scholarship from an non-profit organization for $1,000.00; with no specific restrictions on how it was to be used. We did use it for required books and materials.  The non-profit organization issued my daughter the 1099-misc with $1,000 in box 7 (they sent the check directly to her). 

Since the $1,000 scholarship is her only “income” for tax year 2019, she wouldn’t be required to file her own individual tax return, correct? As her “income” is well under the income limit for single?

We (parents) still claim her on our tax return and will include the 1098-T on ours as well. Thanks.

[Hal_Al]

Q. She wouldn’t be required to file her own individual tax return, correct? As her “income” is well under the income limit for single?

A.  Not exactly. Although scholarship income is subject to the $12,200 filing threshold,  a 1099-Misc, with an amount in box 7, only has a $400 filing threshold. As explained above, not filing is an option. 

If possible, your best bet is to ask the non-profit to issue a corrected 1099-Misc, with the amount in box 3, instead of box 7.  If you get an IRS inquiry, maybe  a letter from the organization, explaining the scholarship intent will take care of it

The problem is that the IRS considers anything in box 7 of 1099-MISC to be self employment income and it's an area of high enforcement; although a $1000 amount may slip under the radar.

[toddhmcintosh]

I just did a practice run inputting my daughter’s tax return. I identified the $1,000.00 scholarship reported on the 1099-Misc (box 7) and reported no other source of income and/or dividends/etc.; it resulted in zero tax liability for Federal or State. 

Since there is no tax liability, do I proceed to file her tax return with the 1099-misc (box 7)? Do you foresee anything negative with the IRS/State? I did email the non-profit and inquired if they could correct the 1099-misc and identify box 3 instead. Thank you. 

[Hal_Al]

Yes, do not file a return for her.  Since it's entered as scholarship, it's under the filing threshold.

Yes, there's a small risk that you'll hear from the IRS; but that risk would not be lessened by filing a return without tax liability.  I think you'll be able to explain it away if you do hear from them. Not any chance of hearing from the state, as they key off the federal, not the 1099-Misc.

[toddhmcintosh]

I just received an corrected 1099-MISC document from the non-profit organization; the $1,000 college scholarship is now reported in box 3 instead of box 7. With that said, my question(s) now are:  Does my daughter have to file a tax return for the 1099-misc. ($1,000 box 3), if that is the only reportable “income” she had for year 2019? Or she has no need to report the 1099-misc. and not have to file a return? The scholarship was used for required books and materials. Also, do I need to be concerned about the $1,000 scholarship when filing my tax return which will report the college issued 1098-T or can I disregard? Thank you!

[Hal_Al]

Q.   Does my daughter have to file a tax return for the 1099-misc. ($1,000 box 3), if that is the only reportable “income” she had for year 2019? 

A. No. The filing threshold, for a dependent with this kind of income is $1100*. 

Q,  Do I need to be concerned about the $1,000 scholarship when filing my tax return which will report the college issued 1098-T or can I disregard? 

A. You can disregard.  The $1000 was reported as taxable income, on a 1099-Misc.   So, it is not classified as tax free scholarship.  You may count your book & material costs when calculating your tuition credit.

__________________________________________________________________________

*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 2019 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,200.
2.          Unearned income (interest, dividends, capital gains, income in box 3 of a 1099-Misc) 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 ($12.200 if under age 18)
5.          Other self employment income over $400, including box 7 of a 1099-MISC