@spikemarbles said
"the stipend was reported in the 1098-T from her university in box 5 (Scholarships/Grants)"
"The research lab also furnished a 1099-MISC reporting the amount"
That sounds like duplicate reporting. TT can handle that (and apparently did) but it treats it as 1099-Misc income rather than scholarship income (which it is)
You want to enter the income as scholarship income, not 1099-Misc (other) income. Scholarship income is treated as earned income for the calculation of her standard deduction (but not for some other purposes). So, yes, you are correct, the stipend is treated as earned income and should be included in calculating her standard deduction. 1099-Misc income is unearned income and gets her a smaller standard deduction.
The simplest thing is to not enter the 1099-Misc, since the 1098-T entry treats it as scholarship. But that risks an IRS inquiry. You essentially have an erroneous 1099-Misc.
If you received an erroneous 1099-Misc, You have several choices:
- Ideally, you get a corrected 1099-misc from the payer, showing 0 income (that's unlikely)
- Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
- Report the income as other line 8z, Schedule 1 income (enter in TurboTax at the 1099-Misc screen) . 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.
- Don't enter the 1099-Misc and hope you can explain it away when & if the IRS contacts you
