Are non-student taxable grants considered earned income?

[leonardhle]

The taxable grant, paid for performing research for the NIH, is listed on Form 1099-G.

[KatrinaB · Accepted solution]

No. It is not listed as a type of earned income by the IRS. Please view page 7, IRS Publication 596 below for more information.

https://www.irs.gov/pub/irs-pdf/p596.pdf

[twyche]

I'm not a tax expert.  I have a family member who has the exact same question regarding the taxable stipend from NIH that is reported on Form 1099-G.  From IRS tax topic # 421 (Scholarships, Fellowship Grants, and Other Grants), I infer that the payment is earned income as that tax topic says to report the income on the "Wages, salaries, tips" line of Form 1040.  (https://www.irs.gov/taxtopics/tc421)  TurboTax doesn't seem to accommodate this situation so it might make sense to enter the 1099-G information into TurboTax as a W-2.

[xmasbaby0]

No, you do not enter a 1099G as a W-2.  A government grant does not count as earned income toward the earned income credit.    The "boxes" of a W-2 do not match up to the boxes on a 1099G.

Go to Federal>Wages and Income>1099Misc and Other Common Income>Other 1099G Income to enter the taxable grant

[twyche]

I wasn't interested in the earned income credit.  The original question did not mention it either.  I posted my response in case the original poster was in a similar situation as my teenager: worked at the National Institutes of Health assisting researchers.  My teenager worked a set amount of hours each week for NIH and was paid monthly under a fellowship stipend.  My teenager also worked at a second job that was reported on a W-2.  She entered the W-2 information from the second job on TurboTax in the W-2 fields.  She initially entered the taxable fellowship payments from NIH, reported on 1099-G, under Other 1099-G Income in TurboTax.  But, TurboTax showed she owed federal tax.  That doesn't make sense as she only earned a few thousand dollars in 2018 and had taxes withheld from her wages from the second job.  TurboTax seems to have shown federal tax due because her standard deduction was calculated to be less than her total income, because TurboTax did not include her fellowship stipend as earned income.

We found the IRS's Tax Topic No. 421 which seems to be on point.  It states (emphasis added): "

How to Report

Generally, you report any portion of a scholarship, a fellowship grant, or other grant that you must include in gross income as follows:

• If filing Form 1040.pdf, include the taxable portion in the total amount reported on the "Wages, salaries, tips" line of your tax return. If the taxable amount wasn't reported on Form W-2, enter "SCH" along with the taxable amount in the space to the left of the "Wages, salaries, tips" line. If filing Form 1040NR.pdf or Form 1040NR-EZ.pdf, report the taxable amount on the "Scholarship and fellowship grants" line."

Since TurboTax does not seem to include 1099-G income on the "Wages. salaries, tips" line of the federal return, the only way that we could figure out to force the 1099-G income on that wages line of the tax return is to enter the stipend income in TurboTax's W-2 form.

If you have a different understanding, we'd love to learn.

[oaklander]

don't use the w-2 because it will trigger social security taxes.  Instead use this

Also Turbo tax does not properly treat the NIH Post Bac 1098-G taxable grant. The way Turbo tax software treats it if you follow their questionnaire, it shows up under unearned income, and misc income. The only way to have it property show up in 1040 line 1, and not unearned income (which triggers filing of an 8615 form and a punitive tax for the dependent), is to follow the Turbo Tax cpa advice to report this on a 1098T. Basically make NIH the school, fill in no educational expenses, and a scholarship of the amount of earnings. You may have to recheck in the actual form that it gets entered correctly there. The first time I entered in the questionnaire, but it did not show up in the 1098T form as scholarship. This makes the amount show up property in 1040 line 1, (Amount - Sch) as per IRS Publication 970 page 6, and IRS, and makes it not show up as unearned income, as per IRS Publication 929 pages 14, 17, 18, since it is not. I sure hope Turbo Tax fixes this before next year, and PS the regular folks at Turbo Tax just tell you the software is correct, when it isn't....I heard on one posting someone actually paid this tax, which can be substantial if your child is a dependent.....