@linhuisk wrote:
Hi ColeenD3
Thank you so much for quick reply. He is a candidate for a collage degree. But he did not use this $4500 internship stipend for any education expenses and he deposited it into his Roth IRA account for 2021 contribution. So in this case, he can not use Form 1098-T. We will use Miscellaneous Income and it will end up Tax $301 after deduction of $ 1100. Is this correct? After paying tax, the $ 4500 he deposited into his Roth IRA is allowed, right? We would like to confirm that he is allowed to put $ 4500 into 2001 Roth IRA contribution after he files tax return.
Thanks.
An internship is not a grant. Or probably not.
The IRS says this,
Graduate or postdoctoral study.
A scholarship or fellowship is generally taxable compensation only if it is in box 1 of your Form W-2, Wage and Tax Statement. However, for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These amounts include taxable non-tuition fellowship and stipend payments made to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in chapter 1 of Pub. 970, Tax Benefits for Education.
https://www.irs.gov/pub/irs-pdf/p970.pdf
To contribute to an IRA, he must have compensation. Compensation is usually earned income (subject to social security withholding or self-employment tax), but compensation also includes taxable grants and fellowships as described above.
In most cases, a paid internship is not going to fall under the category of compensation, because it is not a grant or fellowship. A paid internship is also not earned income, because if it is considered part of his education, he probably does not report it as self-employment income on schedule C.
I don't believe your son can contribute to an IRA if his only income is the internship.
If you believe the internship does counts as "non-tuition fellowship and scholarship" income under publication 970 (this is your risk to take), then in Turbotax, the only way to get Turbotax to recognize it as "compensation" is to enter it in the education expense interview, even though no 1098-T was issued. If you enter it as misc income, the program will not recognize it as compensation and will tell you that IRA contributions are not allowed.
