If you student-dependent got this money for working for the school, it can be reported as scholarship-stipend income. After entering her 1098-T, on her return, she will be asked if there were any scholarships not reported on the 1098-T. Answer yes and enter the amount. 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 (this line is new for 2022).
Alternatively (if she is not otherwise entering the 1098-T) : 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, as described above.
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 (e.g. EIC). If that is her only income ($6000), technically she is not required to file (it's less than $12,950). But, you may want to file anyway because of the 1099-MISC.
This next steps are optional (and in addition to entering it as scholarship). There's a chance the IRS computers will not match the 1099-Misc to the Scholarship income. If you want to try to ward that off, do this:
Enter at the 1099-Misc screen
On the next screen Describe what the payment was for
On the next screen select "none of these apply"
On the next screen select "No it didn't involve work like my main job"
On the next screen select "I got it in 2022" ONLY
On the next screen select No, it didn't involve intent to earn money
TT will put the amount on line 8z of Schedule 1 as other income shown on a 1099-MISC
Then enter a line 8 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 (1099-Misc reported as Scholarship income).
TT will put the same amount on line 8z of Schedule 1, as a negative number, zeroing out line 8z, but reporting the 1099-MISC.
