@linhuisk wrote:
Hi opus 17,
He is an undergraduate and no any paper work ( no W-2 or 1099 form) was received for his 2021 summer internship stipend.
We pay tuitions and he receives some scholarship and there is 1098-T for 2021. We used this in our family return and claim him as dependent. So he will file his own tax return and where should he put this $4500 stipend with no-forms?
Do you know SECURE Act and does this only apply to graduate student?
Thanks.
As quoted from publication 590-A, the definition of compensation was expanded to include "taxable non-tuition fellowship and stipend payments made to aid you in the pursuit of graduate or postdoctoral study". Undergrad fellowships are not compensation for IRA purposes.
I would report the stipend as miscellaneous other income. It is not self-employment income and is not subject to self-employment tax or social security tax because the purpose of the internship was education, and not "work" (even though he may have performed work-like tasks).
He likely does not have to file a tax return at all. He owes no income tax if his taxable income is less than $12,550, and he won't get anything from the American opportunity tax credit even if he files, because he is your dependent. In fact, if he is your dependent, you should report his 1098-T on your tax return, not his. In that case, his only other income being the stipend which is less than $12,550, he would not be required to file at all.
The state tax return situation may be complicated, which would be a good reason not to file at all, if you can avoid it. Any taxpayer owes a state tax return to the state where they live (their permanent residence) that reports all their world-wide income. If they live or work temporarily in another state, they owe a non-resident return to that state that reports income earned in that state only. (The state where the business is located is irrelevant in most cases. What counts is where the taxpayer physically lived and worked while earning the money, and where their permanent residence is.)
Permanent resident status is determined by where your domicile is located. You can read here about how NJ determines domicile. https://www.state.nj.us/treasury/taxation/pdf/pubs/tgi-ee/git6.pdf
To establish a new domicile, you must also take active steps to abandon your old domicile. It is very likely that your son is domiciled in NJ, at least for now, no matter how long he stays in MA.
So if he files a tax return, he must file an NJ resident return, because NJ is likely still his permanent home, with MA being "temporary" (at least for now). However, if he earned part or all of the stipend while living or working within the state of MA, he also must file a MA non-resident return that reports and pays tax on the portion of his income that was paid while living or working within MA. To reduce the burden of being taxed in 2 states on the same money, NJ will give him a credit against any tax he pays in MA.
But again, if he is your dependent, you should report the 1098-T on your tax return; and he is not required to file if his only income is less than $12,550. (However, if he decides to leave the money in the Roth, he will be required to file to pay that penalty, even though his income won't be taxable.)
