@Chris4121 wrote:
Thank you Opus 17.
Her income feels like "earned income", not "unearned income", since she earned it by working in their laboratory. The university where she had the summer internship was not the university where she goes to school. She goes to school in another city, but came home for the summer and worked at a local one. The (summer internship) university classified all $3,500 of it as Box 3 "Other Income" on a 1099-Misc.
True, research internships and stipends often seem like "work", but the IRS classification as unearned income is quite clear. If it was an internship at an outside company unconnected to her education it is clearly work and should be on a W-2. Internships that are preformed at outside companies but arranged by a college and required for a degree are a bit of a gray area. But a summer research stipend, fellowship or internship performed at a college with primarily an educational purpose is clearly unearned income.
See for example here.
https://www.irs.gov/taxtopics/tc421
This is not a tax-free scholarship, but you will note that for taxable fellowships, the instruction is to report as other income on schedule 1, not as self-employment on schedule C. There is a lot of other tax information on when internships are education vs work, if you really feel the need for me to drag out more proof.
And, note that if you did report it as self-employment income on schedule C, she would not owe income tax, but she would still be required to file and would owe about $525 in self-employment tax, which is obviously more than the kiddie tax on unearned income.
