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If using desktop TurboTax, here's a FAQ with info on the Live Tax Advice feature that @ VolvoGirl shows in her image above.   FAQ:  Desktop TurboTax Live Tax Advice https://ttlc.intuit.com/turbotax-support/en-us/help-article/experts-advice/turbotax-desktop-live-tax-advice/L2nvxpA4W_US_en_US   After you pay the $60 for that feature: To get started with an expert, select Connect with an expert and you'll be able to request a phone call. When an expert calls you back at the assigned time, you can ask unlimited questions and get help with this tax return.

@Hal_Al I finally figured out what was going on and I feel dumb for not realizing this earlier. I had forgotten the phase-out for the AOTC credit as AGI approaches 180K for joint filing. With this phase out the AOTC amount is reduced to $535 rather than the full $2500. So under these conditions it would indeed be better to not enter the 1099-Q or 1098-T for my return since the $535 from the AOTC is not enough to offset the additional tax liability from the $4000 that would be counted as taxable income to get the AOTC credit. We will still go ahead and report the scholarship from box 5 of the 1098-T on my son's return since that is income that needs to be reported somewhere.

If his only income was from the 1099-NEC as you described, it is under the filing threshold for a dependent and he doesn't need to file for California.   See this Franchise Tax Board webpage for the filing threshold criteria.    @Cat_Sushi 

TurboTax desktop does not support Windows 10 for the 2025 tax year.    If you want to use a desktop version of TurboTax and are running Windows, you need to be running Windows 11.   You can, of course, use any operating system if you want to use an online version of TurboTax.

Thank you for all the information.  I have filed a New York nonresident return reporting zero New York–source income. I am considering asking my employer to prepare a letter. If so, what specific language should it include (e.g., no requirement to report to New York, no services performed in New York, and work performed entirely outside New York)? BTW, are you a tax professional? thank you!

If you received a lawsuit settlement for which you were paid back wages, enter the wages and the withholding in the Income - Wages section of TurboTax just as you would any Form W-2, as long as there are wages in Box 1.   If the lawsuit settlement also included damages, they are normally reported on a Form 1099-MISC. If you received one, it will also need to be entered on your return.   If you have questions about what any of the items on the "pay stub" represent, contact the law firm or other provider of the information.   See this help article for more information about reporting legal settlements in TurboTax.