Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC).
So, bottom line: your child is not required to file a tax return because her total income ($2500 + 1200) is less than her filing requirement.
If she did need to file, you might have to make adjustments because of the double reporting (1098-T and 1099-Misc). I would just not enter the 1099-Misc, since the money is on the 1098-T (the proper place). There's a small chance of hearing from the IRS, but it's easily explained. Your employer erred in issuing the 1099-Misc. If you enter it as 1099-Misc "other income" it will be treated as unearned income and become taxable.
The alternatives, frequently mentioned in this forum:
If you received an erroneous 1099-Misc, you have several choices:
- Ideally, you get a corrected 1099-misc from the payer
- 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 old 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 misc line 8z, Schedule 1 income (enter in TurboTax at the 1099-Misc screen and identify it as sporadic income ["did not involve intent to earn money"]). 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. Call it something like "erroneous 1099 received"
- Do nothing and hope you can explain it away when & if the IRS contacts you (my choice in your case)
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