The IRS considers anything on a 1099-NEC to be self employment income. TurboTax (TT) aggressively steers you in that direction. If you try reporting 1099-NEC income as anything else, you chances of hearing from the IRS are high.
If he did not do some kind of work for this grant, it would appear the 1099-NEC was issued in error.
If you received an erroneous 1099-NEC, you have several choices:
- Ideally, you get a corrected 1099-NEC from the payer
- Report it on your return, in the proper place and attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file.
- Report the Income on schedule C and take a deduction under other expenses, call it something like "Income reported as scholarship". Enter the scholarship income at the proper place
- Do nothing (other than reporting the income properly) and hope you can explain it away when & if the IRS contacts you
Assuming Scholarship is the right classification for the income, do not enter in the income section of TT. Instead, In TurboTax (TT), enter at:
Federal Taxes Tab (Personal for H&B version)
Deductions & Credits
-Scroll down to:
--Education
--Education Expenses
You will quickly reach a screen to enter scholarships, not shown on the 1098-T.
If Middlebury issued a 1098-T and already included the $5000 in their box 5, do not duplicate the entry.
Any portion that TT determines to be taxable will be entered on line 1 of form 1040 with the notation SCH.
