Why are you calling this a "scholarship", rather than a "prize" or something else. As a rule, large companies, with scholarship programs, know how to do the paperwork properly.
You do not report this on your tax return. If it goes anywhere, it goes on his return. Your problem (as you probably already know) is a1099-NEC is a red flag at the IRS. Adding it to box 5 of the 1098-T is not going to do that. Actually, TT has an entry point, in the education interview, for "scholarships not shown on the 1098-T". But that's not going to "tag it" to head off an IRS inquiry.
If he reports it as other income (instead of self employment), he's still gonna owe $40 in tax ( a dependent only gets a $1100 standard deduction), with unearned income. Scholarship is classified as earned income, for calculating the standard deduction, so it won't get taxed (standard deduction is earned income + $400, up to $12,950).
Accepting your statement, that it's scholarship, here's how I would do it:
1. add the scholarship at scholarships not shown on the 1098-T. When asked how much of the scholarship was used for room and board, enter $1500 (this gets it to line 8r of schedule 1 where taxable scholarships go). Scholarship used for tuition is usually not taxable. You're only doing this to force an entry onto the tax forms for the IRS to see.
2. Then, report the income as other line 8z, Schedule 1 income (enter in TurboTax at the 1099-NEC screen and identify it as sporadic income).
3. Then enter a line 8z deduction, for the same amount. In TurboTax (TT), enter at:
- Federal Taxes tab
- Wages & Income
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income - Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front. Briefly explain at description. Call it something like "1099-NEC amount reported as scholarship".
There are other options. Ideally, you get a corrected 1099-NEC from the company. You can just ignore it and hope you can explain it away if the IRS contacts you.
Duplicate post. Also see: https://ttlc.intuit.com/community/college-education/discussion/re-do-i-have-to-report-my-son-s-schol...
