Hi,
I am trying to help my college student with his taxes (he is over 18 but claimed on my return as a dependent). He received a stipend which is over $1,100 (but not by that much) and was reported on a 1099-NEC (his unearned income should be under $350).
This stipend was more like payment for services than a scholarship-- it was compensation from the school for taking on extra responsibilities like being a TA. As such, it appears it would be subject to income tax, but not subject to self-employment tax. Does that sound right?
However, it appears that if I report it in turbotax as a 1099-NEC for "money not earned as an employee or self-employed individual" then he is stuck with the $1,100 standard deduction and pays tax on the amount above $1,100. Is that the right outcome?
I offhand had told him that since the amount was so far under the usual standard deduction he wouldn't have to file at all, but it seems like he is stuck between various characterizations. On the one hand, if he is treated as self-employed, I think he would owe SE tax but not income tax? Or the other hand, if his 1099-NEC income is not considered employment income he can avoid SE tax but may be stuck with the $1,100 standard deduction? But the only reason he is paying tax on this amount is that is it payment for services, not a scholarship, so it seems a little unfair that it doesn't count as earned income for purposes of the standard deduction? No one actually earning this amount would pay tax on it.
Am I missing something? Thanks for any advice.
