NIH Postbac 1099-G Reciprocity between Virginia and Mayland

[ThomasM2]

I am a postbac at the NIH, working in Maryland but living in Virginia. I have received a 1099-G "Certain Government Payments" for my fellowship, which is designated as a taxable grant. I know Virginia and Maryland have reciprocity, so am I correct that I would file a Virginia tax return, not Maryland? For some reason, TurboTax is saying I owe Maryland taxes, but everything I'm seeing says to pay in Virginia.

[KrisD15]

Virginia and Maryland do have a reciprocal agreement, however that only applies to wages. Scholarship income is taxable to the state in which it is issued, in your case, Maryland. 

[Hal_Al]

@KrisD15  is correct, the reciprocity agreement only applies to wages. 

But you have an interesting situation.  I'm of the opinion (an opinion I'm not very sure of) that it can be reported as VA income only.  It appears to be one of two possible things and maybe a combination. The income appears to be related to your wage work and or your academic pursuits.  Taxable scholarship to out of state students is not usually considered taxable by the state the school is located in. MD treats taxable scholarship as earned income.

Other than the cost and hassle of preparing an MD return, it comes out even.  VA will give you a credit for any tax paid to MD. 

A separate issue: how are you reporting the income. If entered at the 1099-G screen, it will be treated as unearned income ("other income"). 

Another way to enter fellowship oncome:

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 (this line was added in 2022).

*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.  

[ThomasM2]

Yes, this income is sort of for an academic pursuit. It is a grant for scientific training in a federal agency. As such, I am not employed by the NIH, but have been granted a training award in the form of this taxable 1099-G grant. This position has similar properties and conditions to a University program, such as pauses on student loan repayment for the duration of the training program.

Currently, it seems like there is a split in the information I'm receiving. Many NIH postbac peers I have spoken to have reported that their accountants advised them to only file state taxes in their state of residence (in causes where Maryland was not their state of residence). Obviously this is somewhat second hand, and isn't an official statement from a tax advisor, but I as of yet have not seen examples of NIH research fellows living outside of Maryland, but paying Maryland state taxes. However, it also seems like the 1099-G is not to be counted as wages, salary, tips, etc. on Box one of Maryland Form 505 for nonresidents: https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/forms/2022/505.pdf

For reporting the income on TurboTax, I was entering it at the 1099-G screen, and it as treated as unearned ("other") income. Would it be more accurate to enter it in the way you describe, under Educational Expenses and Scholarships?

Thank you for your feedback, and let me know if you have more thoughts on the matter!

[Hal_Al]

Q. Would it be more accurate to enter it in the way you describe, under Educational Expenses and Scholarships?

A. Yes, because of your description of the grant, marking it as a fellowship. 

[ThomasM2]

And just to clarify, when it makes me fill out a 1098-T, I should enter in details about the National Institutes of Health (even though I will not be receiving a 1098-T for this program)? Or should I back out of this, leaving this section blank, then go back in to add the scholarship/grant information?

[Hal_Al]

You could enter a bogus 1098-T, with the grant amount in box 5 and nothing in box 1. That should actually be quicker. The bogus 1098-T would not be sent to the IRS. 

But, my original entry method was to by pass the 1098-T screen. 

[ThomasM2]

Great, this has been super helpful, thank you! I did some reviewing, and you're completely right about putting it as an educational scholarship.

The only other thing I need to figure out, is do I file in Virginia or Maryland? It is technically a Maryland grant, but I'm not "working" in Maryland, I'm receiving training, attending workshops, and performing student research". It is all classified as education though. So am I safe to only file my Virginia state taxes? TurboTax is unclear about this.

[Hal_Al]

Q. So am I safe to only file my Virginia state taxes? 

A. Probably, unless MD is in box 10a of the 1099-G.  If so, the safe thing is deal with it now. The expense and inconvenience  of filing two states now, is less than the hassle of dealing with MD plus amending the VA return later. 

[ThomasM2]

I can confirm that box 10a of the 1099-G is blank. I will plan to go ahead and only file in Virginia, not in both states.

Thank you for all your advice!