Is an REU summer research stipend considered Unearned Income for dependent student?

[jaoh]

Working on daughter's taxes (dependent). Is an REU (research experience for undergraduates) summer program through the NSF (school distributed 1099-Misc box 3 for the amount) - considered Unearned Income? The University considers this a stipend.  This was at a college during the summer for which she is not pursuing her degree.  Doesn't really seem like it should be hit by the kiddie tax... thanks

[JamesG1]

The IRS defines unearned income in the Instructions for IRS form 8615.

 

Unearned Income

Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually performed (earned income). It includes taxable interest, dividends, capital gains (including capital gain distributions), rents, royalties, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2, unemployment compensation, alimony, the taxable part of social security and pension payments, and income (other than earned income) received as the beneficiary of a trust.

Research stipends are generally not reported on a W-2.

@jaoh 

[Hal_Al · Accepted solution]

Q.  Is an REU summer research stipend considered Unearned Income for dependent student?

A. Simple answer: No.

But TurboTax will treat it as unearned income if you enter it as "other income".  Income reported on a  1099-Misc (box 3) will usually get reported as other (unearned) income on line 8z of Schedule 1.

In TT, you have to work around the1099-MISC.  Instead of entering in the 1099-Misc section, you enter it as taxable scholarship. After entering your 1098-T, you will be asked if you had any scholarship not shown on the 1098-T. Answer yes.  Then enter the amount.  When asked how much was used for room & board, enter the amount again. That step makes it taxable.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (EIC. IRA contributions).  So, technically it's still subject to the kiddie tax, but because of the increased standard deduction, most students don't actually pay any tax. 

[jaoh]

Ok.  Since the REU is from a different school than the 1098-T, that should still be ok - we're just doing that to make it taxable.  Assuming then the end result is the REU amount will show up on schedule 1 once complete (maybe line 8r) and no 8615 should be generated?  That sound correct?  Thanks Hal-Al!

[Hal_Al]

Q. Since the REU is from a different school than the 1098-T, that should still be ok - we're just doing that to make it taxable? 

A. Yes.

Q. Assuming then the end result is the REU amount will show up on schedule 1 once complete (maybe line 8r) and no 8615 should be generated?  That sound correct?  

A. Yes. It must show up on line 8r, to be classified as taxable scholarship and get him the larger standard deduction.  No form 8615 will be generated as long as his total income is less than $14,100 (12950 +1150)

[jaoh]

Thank you very much!

[jaoh]

Sorry, one more question on the Unearned piece of this.

1040 Schedule 1, line 8r has a heading of: 

Scholarship and fellowship grants not

reported on Form W-2

It appears that the newest version of the definition for Unearned Income in 8615 has the exact same wording as in 1040 schedule 1 line 8r:

Unearned Income
Unearned income is generally all income other than salaries, wages,
and other amounts received as pay for work actually performed
(earned income). It includes taxable interest, dividends, capital gains
(including capital gain distributions), rents, royalties, pension and
annuity income, taxable scholarship and fellowship grants not

reported on Form W-2 , unemployment compensation, alimony, the
taxable part of social security and pension payments, and income
(other than earned income) received as the beneficiary of a trust.

Could this be something new and should now be considered unearned income?

Or still go on 8r but don't do the 8615 still even though that line fits the definition of unearned income?

Or something else?

Thanks again!

[Hal_Al]

There's nothing new.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (EIC. IRA contributions).  So, technically it's still subject to the kiddie tax, but because of the increased standard deduction, most students don't actually pay any tax. 

But if your student's total income is more than $14,100 (12,950 + 1150) then they will be subject to the kiddie tax and form 8615 is required.