How to enter a 1099Misc from a summer research fellowship

[bartzda67]

Hello -

My daughter conducted a Summer Undergraduate Research Fellowship (SURF) at the Mayo Clinic last summer.  Mayo sent her a 1099Misc reporting $6000 in box3.   I am somewhat confused on how to report this on her taxes.  Technically I can still chose to claim her as a dependent as she was a Junior/Senior in 2024 and was 22 in 2204 (and I meet all the other requirements for a dependent).

If I report the 1099Misc in the wages section, TT wants to setup a Schedule C and assume she is a small business but this is not the case.  I then get into "unearned income" that then is also being taxed at my rate (Kiddy Tax) and not her rate. 

 I've also seen other comments where I should instead be reporting this in the "Educational Summary -> Scholarships/Grants (for all schools)" as "Other Scholarship/Grants/Fellowships" and as long as the total scholarships she has reported on her 1098T (box 5) and this Mayo 1099Misc is less than the amount reported in Box1 of her 1098T, then the fellowship is not taxable?  

Is the latter the correct way to report this for her?   If so, how do I tell the IRS that the 1099Misc is reported in the Educational Summary Section??

[Bsch4477]

The fellowship payment is not subject to self employment tax so don’t complete a Schedule C. Report on her return as Other Income. The income is subject to Kiddie Tax. 

[Hal_Al · Accepted solution]

Yes,  report the fellowship/stipend  in the "Educational Expenses and Scholarships (1098-T)  Scholarships/Grants (for all schools)" as "Other Scholarship/Grants/Fellowships".

Q. and as long as the total scholarships she has reported on her 1098T (box 5) and this Mayo 1099Misc is less than the amount reported in Box1 of her 1098T, then the fellowship is not taxable?  

A. No. You cannot apply/allocate the Mayo fellowship to tuition. It must be reported as taxable income.*

If you  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 fellowship/stipend there.  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 fellowship. 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.

 Q.  How do I tell the IRS that the 1099Misc is reported in the Educational Summary Section?

A. Basically, you don't. ** Their computers will most likely match the amount on Schedule 1 to the 1099-Misc and there won't be a problem.  If you hear from the IRS, it's easily explained. 

*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).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

**There is a way to cover that concern.  After entering as scholarship, you re-enter it as other income at the 1099-Misc screen. Then you enter it a third time , except as a negative number.  That will put two offsetting entries on line 8z of Schedule 1. 

[bartzda67]

Thank you for the reply.   You have helped me greatly understand how to report this and how to get the $6000 fellowship to report correctly.   

One huge "gap" TT has is that she still has to do the 8615 Kiddie Tax form (she won a $1750 college prize and has a second 1099Misc that truly needs to gets entered as a 1099Misc - Schedule1 Line 8i).   When doing the final TT review, it flags form 8615 as needing the Parents income and tax from our return, which I then have to enter to correct the review.   However, when I expand the 8615 form itself, TT never asks me if I have ScheduleD Dividend and Short/Long Term entries.  I do, and this make a huge difference on what she owes on that $1750 1099Misc.

[Hal_Al]

The kiddie tax is really a separate subject. You may want to post a new question to get experts on that subject to look at it. I'm not very  knowledgeable on it. 

That said, a cursory review of form 8615 shows no place to enter the parents capital gains/qualified dividends; only  a box to check if  the Qualified Dividends and Capital Gain Tax Worksheet was used. 

If the student has capital gains and or qualified dividends, that will come up in the income interview. 

[bartzda67]

Thanks again for all your assistance on this question.  I also after looking more in the "income and wages" section, under "less common income", there is a section for "child income".  Those interview questions ask me for the dividends and cap gains needed for the 8615.  I had missed this section the first time and the error check only flags the income and tax amounts, and not the figures needed for calculating the the alternative taxable parent income using schedule D figures. 

When I was doing the review and needed to enter the values TT flagged, I looked at the overall 8615 TT shows and it shows a richer form that the IRS shows (the richer fields is in the IRS instructions).  I then went back to the step by step and was able to enter all the values needed to bring the kiddy tax down significantly.  If I had just entered the 2 amounts and not switched to the forms view, I would have missed it.

Appreciate you noting that your not an expert in the 8615 form, but your help with the 1099Misc fellowship has greatly helped as I initially had it entered not on line 8r (it was down on 8z) and as a result it ended up with over $1000 additional taxes when mis-categorized.   You first explanations on how to enter it on the educational summary and get it over on Schedule 1, line 8r was the difference maker for us.

[DC05]

I have a very similar situation (I hope it's ok for me to ask in this thread instead of starting a new one). My child had a summer research fellowship as an undergrad. I claim her as a dependent on my tax return. She got a 1099-MISC. By entering the fellowship amount in the education section as you suggested, TT put it in line 8r in schedule 1. But TT also put the amount of standard deduction to be fellowship amount +$450. Is that correct? I thought fellowship money is not considered earned income. 

[KrisD15]

It's both earned and unearned depending on the application. 

Yes, the Standard Deduction will increase due to the scholarship/Fellowship income.

[DC05]

Thanks for the response! If the fellowship money is considered earned income and can be included in the standard deduction, it reduced her tax liabilities and she doesn't own any taxes. But some searches on the internet (including chatgpt) says the fellowship money is not considered earned income. I just want to make sure her first tax return doesn't trigger any questions from IRS. I am wondering what are the circumstances where it is considered earned income vs unearned income. 

[Hal_Al]

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).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

The fact  TurboTax treated it, as earned income, when calculating the standard deduction, should give confidence that what we are telling you is correct. The IRS is capable with matching line 8r of schedule 1(identifying it as earned income) to line 12 of form 1040 (the calculated standard deduction). 

[AmyC]

Fellowship/ Scholarship income can be tax free but often isn't. See Topic no. 421, Scholarships, fellowship grants, and other to determine if your child's is taxable. Your dependent deduction is correct - if it is taxable income.

Scholarship income is a hybrid of earned income and unearned income.

• Earned income  for purposes of the filing requirement 
• Earned income for the  dependent standard deduction - scholarship + $450 
• Unearned income for purposes of the kiddie tax, see What is the Kiddie Tax?
• @DC05 

[kindlib]

Hello @Hal_Al , We are in the same situation with an undergraduate child receiving income from a summer research fellowship on a 1099-MISC.   I followed these steps and it correctly allocated the income to line 8r of Schedule 1, instead of the dreaded line 8z.  Thanks for the helpful advice.

One twist for us is that the income was received from a DIFFERENT university from the one she attends as an undergraduate, and it's in a different state too.   Furthermore, she has a 1098-T from her primary university (and a 1099-Q).   Normally we don't enter those.   Do we need to enter either or both of those to use this technique?

[bartzda67]

TT will tell you that you don't have to enter 1098T and 1099Q from her primary school as long as the amount of your 1099Q is fully covered by Tuition, R&B, and other qualified 529 expenses at the students primary school.   So if you used $20,000 from a 529 (amount on 1099Q) and have $15,000 Tuition, $6000 R&B, then you technically do not need to enter either.  I did, just so that I had them fully documented.   I just entered the 1099Q first, then entered the 1099T details.  Lastly I entered the 1099Misc as noted by Hal_AI and noted that 100% of the 1099Misc was R&B in order to get it over to line 8r.

When entering the 1098T section, go into the "Scholarships and Grants (for all schools) section.  Since you have first entered your 1098T, you should have amounts filled in on the Scholarships/Grants/Fellowships listed on 1098T (which may be zero).  Put the 1099Misc on the "Other Scholarships/Grants/Fellowships" line and hit next.

When you get to the "Did you pay for R&B with a Scholarship or Grant, select Yes and then it will ask you how much  of the total scholarships (form the 1098T and the 1099Misc) was used to pay RB.  Enter the amount from the 1099Misc and this puts it on line 8r (which I'm guessing you did as you noted you got it off the dreaded 8z onto 8r).

My situation was the same as yours.  her 1099Misc was from a different institution than her primary school.

[bartzda67]

One part I forgot to mention as well on the states.

I had the same situation.  The summer research fellowship was in one state and her school is in another state.  Does not make any difference on your federal return. It will however possibly if your undergrad earned money while at college.  That was my situation and you just tell TT that you need to file taxes in multiple states (you may have 3 if your student lives in state X and made money over breaks, goes to school in state Y and has workstudy or a job, and had their summer research internship in Z).   TT will ask you for each 1099Misc how much of each was earned in each state.  You just need to split them out.  My daughter had 2 1099Misc - one from her summer research in state X and one from a college department academic award from State Y.  TT will ask you to allocate each accordingly.  In my case, with her college department academic award, it pushed her into the 1099Misc Kiddie Tax :(, but again TT will walk you through that if it applies.  

[Hal_Al]

Q. She has a 1098-T from her primary university (and a 1099-Q).   Normally we don't enter those.   Do we need to enter either or both of those to use this technique?

A. No.  You can enter the "Educational expenses and scholarships (1098-T) section without a 1098-T. 

 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.