nontaxable scholarship money reported on 1099 misc
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EKirby3429
Returning Member

nontaxable scholarship money reported on 1099 misc

My daughter received a 1099 Misc with 3000 reported in box 3 from the company that awarded her a scholarship. The 3000 is a nontaxable scholarship she received and used on tuition and qualified expenses.  She also received a 1098 T from her school.  My husband and I claim her as a dependent and use the 1098 T on our taxes for the education credit.  How do we handle the 1099 Misc that is in her name? If she enters it on her taxes TT wants to treat it as business income and do a Schedule C.  If it is supposed to be nontaxable scholarship money how do I enter it into TT tax so that it is handled correctly?

11 Replies
AmyC
Employee Tax Expert

nontaxable scholarship money reported on 1099 misc

Follow these steps on student's return to enter it as other income:

  1. Log into your return
  2. Federal
  3. Click on Income
  4. Scroll to the bottom section, Less Common Income
  5. Select Miscellaneous income, 1099-A, 1099-C, start
  6. Select Other Income
  7. Did you receive other wages? Yes
  8. Continue
  9. Household employee? Continue
  10. Sick or disability pay? Continue
  11. Any other earned income or wages? Yes
  12. Enter source of Other Earned Income
  13. Select Other
  14. Continue
  15. Enter description SCH
  16. Enter amount

 

Box 3 is other income and should not be showing as a business.

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EKirby3429
Returning Member

nontaxable scholarship money reported on 1099 misc

When I did as you instructed tt deluxe did not give me any of the questions you listed under 7 thru 14.  other income asks for income not reported on a 1099 misc.  When I enter the amount and description it then shows that my daughter now owes a tax payment.  How do I change this as she should not have to pay taxes on this scholarship because she used it for paying her tuition?

AmyC
Employee Tax Expert

nontaxable scholarship money reported on 1099 misc

I am so sorry! Yes, the 1099MISC  is entered as taxable income and then you go through the same steps again and make a second entry, this time the description is nontaxable sch and the amount as a negative.

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EKirby3429
Returning Member

nontaxable scholarship money reported on 1099 misc

Ok. Do I create a second 1099 and and imput it as negative or do I enter it as a negative under line 22 other taxable income?

LenaH
Employee Tax Expert

nontaxable scholarship money reported on 1099 misc

No. You would enter her 1099-MISC on her return as shown and then enter a separate line in Other Income with a negative. The net of these two numbers will be the amount she is taxed on, which will be zero. Do not create a second 1099. 

 

Once you enter the 1099-MISC and it flows to Other Income, please enter the negative amount as follows: 

  1. Click on Federal on the left hand side.
  2. Scroll down to Less Common Income.
  3. Click Start next to Miscellaneous Income.
  4. Click Start next to Other reportable income.
  5. Answer Yes to Any Other Taxable Income?
  6. List description/reason it is nontaxable.
  7. Enter the amount with a negative.

Next, preview your 1040 to ensure both the 1099-MISC and the negative number net to zero and are both reported in Part I, Line 8.

  1. Click on Tax Tools
  2. Click on Tools.
  3. Click on View Tax Summary under Other helpful links.
  4. Click on Preview my 1040.
  5. Once open, use Control + F, and search Schedule 1 and look for Line 8. 

@EKirby3429

 

EKirby3429
Returning Member

nontaxable scholarship money reported on 1099 misc

I understand how to handle the 1099 misc on my daughter's tax return, how to enter it and then zero it out. If it is her 1099 misc and entered on her tax return, why should it show on my and my husbands's tax return, or do you mean to check Schedule 1 line 8 on her preview of 1040?

EKirby3429
Returning Member

nontaxable scholarship money reported on 1099 misc

Also, on my husband's and my tax return under education entering information for her 1098 t. when it asks "Was any of Charissa's Financial Aid already included as income? and says "Tell us if any of the 15,575 in box 5 of charissa's 1098 T includes amounts already reported as income on Charissa's tax return?" do we answer yes and enter the 3,000 or do we answer no?

MaryM428
Employee Tax Expert

nontaxable scholarship money reported on 1099 misc

Do not enter any scholarship income reported on a 1099-MISC. In some cases an employer will reimburse school expenses and report them on your W-2.  Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2.

Hal_Al
Level 15

nontaxable scholarship money reported on 1099 misc

Who was this "company" (what is their relationship to you and/or your daughter) and why did  they giver her $3000. 

 

Why do you think it is tax free scholarship ant not something else (e.g. compensation)?

 

Tax free scholarships are simply not reported on a 1099-Misc.  If it's on a 1099-Misc, it's taxable, unless you can prove it isn't.  If it's in box 3 of a 1099-Misc, it is not self employment. Unfortunately TurboTax aggressively steers you in that direction. 

 

For a dependent, it makes a difference whether the money is reported as scholarship or "other" (misc) income.  Scholarship is earned income for purposes of calculating a dependents standard deduction.

 

As to: "Was any of Charissa's Financial Aid already included as income? and says "Tell us if any of the 15,575 in box 5 of charissa's 1098 T includes amounts already reported as income on Charissa's tax return?" do we answer yes and enter the 3,000 or do we answer no?  Do you know for a fact that the $3000 is included in the  $15,575?  If, so answer yes and enter $3000. 

EKirby3429
Returning Member

nontaxable scholarship money reported on 1099 misc

The company that provided the 1099 is Scholarship America Inc.  The scholarship is a dependant scholarship program sponsored by the company that my husband works for. The letter we received from Scholarship America says on behalf of (the company my husband work's for "

I am pleased to announce you have been selected to receive a $3,000.00  award to be used for education related expenses. Once tuition, fees, and other on campus expenses have been met, additional funds may be released to the student for other education-related expenses.
 
You must meet all eligibility requirements including enrolling in a full-time undergraduate course of study at Bellingham or another accredited United States two-or four-year college or university or vocational school for the spring 2021 semester.  A school change may result in an award adjustment. Also, your parent must continue employment with (my husband's company of employment).
 

My daughter did not have to do anything to receive the scholarship other than apply and meet their requirements.  If it is considered compensation from my husband's work, why is the 1099 to her instead of to my husband? 

Hal_Al
Level 15

nontaxable scholarship money reported on 1099 misc

Did you ask Scholarship America Inc why they sent a 1099-Misc.

I had the same situation (15 years ago) with my son, my employer and Scholarship America Inc.  No 1099-Misc was issued. 

 

Scholarship America is big enough to know what they're doing.  I'd say it's taxable. It's just not self employment. 

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