@magicstar41000-y
No, please stop. You are making this way too complicated.
If you want to understand why the school did things a certain way, ask the school, only they can tell you.
For your child's income taxes, you should:
1. Ignore the pay stub. The only thing that counts is the W-2.
2. Ignore the 1098. Your child did not pay any tuition, therefore they are not entitled to any tax credits.
3. As to whether the income is taxable in PA, you must consult the PA instructions. In most states, this would be taxable income on a non-resident return. However, after doing some extensive research (you're welcome) I found this.
Stipends
- Pennsylvania-Taxable
Stipends paid to medical interns and residents pursuant to an internship or residency program that conforms to the Essentials of an Approved Internship or the Essentials of an Approved Residency as established by the American Medical Association are taxable.
- Pennsylvania Nontaxable
Fellowship awards and stipends do not constitute taxable compensation for services if the recipient is required to apply his skill and training to advance research, creative work, or some other project or activity, and the recipient can show that:
- The benefits resulting from the services of the recipient are so minimal, given the actual services performed or expected to be performed, that they constitute no realistic basis for compensation by the institution sponsoring the fellowship or stipend; or
- The activities of the recipient are so closely and directly supervised and immediately controlled by regular faculty members so as to constitute a burden on the institution which would offset any benefit it receives from the recipient's activities; or
- The recipient is a candidate for a degree and the same activities are required for all candidates for that degree as a condition for receiving such a degree.
