How do I enter college stipend for junior practicum that is reported on 1099-NEC?

[ellyragone]

My daughter received a stipend to support her junior practicum internship experience.  I believe she received credit for the internship, but I'm checking to confirm that.  She received a 1099-NET for the stipend amount.  I'm trying to enter it in the other income portion of her taxes, but TurboTax seems to be treating it as self-employment income ... is there some other way to enter it as a college-related stipend?  Thanks.

[DavidD66]

No, even though it may have been called "stipend" and is school related, it must be reported as self-employment income on Schedule C.   She can deduct any expenses that she incurred while working to earn the "stipend".  

[ellyragone]

Thanks, David.  This prior post (https://ttlc.intuit.com/community/college-education/discussion/if-i-received-a-1099-nec-for-a-ph-d-s... - and some others) suggest otherwise ... my daughter received academic credit for the practicum, so it was academic work rather than paid employment, no?  I've added it to her education grants and scholarships section (beyond what was reported on her 1098-T), per the other thread ... I'd love folks' thoughts.  @Opus 17 , who wrote the other thread, do you have any thoughts?  Thanks, all!

[DavidD66]

If the stipend was part of a scholarship or fellowship and was for living expenses (room & board) it would be treated as a taxable scholarship.  However, it was by reported on Form 1099-NEC, therefor the issuer/payer has classified the payment as being for services rendered/work performed, which is reported on Schedule C.  

[ellyragone]

Thanks.  Prior posts suggest the switch to form NEC hasn't been smooth - that there used to be a fellowship exception option when the MISC was used for these, and that adding it to the education scholarships and grants under deductions gets the stipend properly treated as taxable academic fellowship money.  @Opus 17 , am I misunderstanding your other posts?  

And just to confirm, if it is taxable academic fellowship money, would it only be taxable IF my daughter earned total income above the $12,950 filing threshold?  Because right now, after adding this stipend to her scholarships and grants, beyond what's in her 1098T, TurboTax is showing no taxes due, and I want to be sure I'm not missing anything.  Her total income, counting this stipend, is well below this threshold, so I think that's why, but I'd like to be sure.  Thanks so much!

[Opus 17]

@ellyragone 

@DavidD66 

The problem is that the payer does not always use the correct rules or know the correct tax laws. I would not rely on the fact that a 1099 NEC was issued to be definitive proof that the stipend was considered compensation for employment, rather than an educational fellowship.  You will have to determine based on your own facts and circumstances, whether this was “education” or “work.”

Someone else who has expertise in this area is @Hal_Al 

I believe that in the 1099 interview, there should be a list of special circumstances, and one of the items on the list is educational fellowship.  That should render the income taxable as “other income“ rather than as self-employment income. You can also bypass entering the 1099 NEC completely and walk through the interview for educational expenses. You will start by indicating that you do not have a 1098T, but then you can enter a stipend or fellowship “not reported on a 1098.”

if you don’t report the income as self-employment, it is always possible that the IRS will send a letter, asking the tax payer to include a schedule SE, and pay the self-employment tax. The taxpayer would reply with a description of the facts and circumstances that make it educational, along with any useful proof, such as emails, or a course record, or a course transcript that proves the activity was educational. 

[Hal_Al]

You don't say who the payer is, the school or  some other organization (a company).

The three choices: self employment, other income or scholarship. 

If the employer was the school. it's scholarship. If someone else, one of the other, even if she got academic credit. You can use the one time gig exception to call it other income and avoid self employment tax.  But other income is unearned income and her standard deduction is only $1150.  She will have to pay tax.  If it is taxable academic fellowship money, would it only be taxable IF her earned total income above the $12,950 filing threshold. 

As you can tell, there's disagreement on this situation.  That's my opinion.  Tell us how you want to report it and we'll give you a work around in TT.  Example at

 https://ttlc.intuit.com/community/taxes/discussion/re-1099-nec-scholarship/01/2915135#M1064183

[ellyragone]

Thank you so much, @Hal_Al , @Opus 17 , and @DavidD66 .

Her college, where she is a full-time student, sponsors a junior practicum. Students receive a flat amount (stipend) for completing research or some type of internship with a supervisor.  There is no hourly wage, and it is meant to support their expenses in completing the program, I believe.  They then receive academic credit for the program.  The payment came from the college.  So, it sounds like this should be taxable fellowship money, right, for which she would owe taxes if she earns above the $12,950 threshold, is that right?

Based on other threads, I've added the amount of the stipend in the education deductions part of TT.  She did receive a 1098-T for other scholarships and grants, so I added this stipend to that other amount as permitted in TT.  Right now, TT is showing no federal taxes due and $6 state refund (which I wouldn't bother pursuing - it costs more to file!).  I just want to be sure I've done this correctly since she received a 1099-NEC, and I'm not formally reporting an NEC (although I am fully reporting the amount of the stipend reported in the NEC).  I truly appreciate whatever steps you can specify in TT to make sure we're fully compliant.  Thank you all so much!!

[ellyragone]

And p.s. If I were to contact the school to see if they'll fix this, what is the proper way this should have been reported if not through a 1099-NEC?  Thanks!

[KrisD15]

1099-MISC would have been a better form for the school to use. 

Yes, as the conversation has indicated, your situation can be handled several ways. 

IRS publications can't cover every possible real life scenario. 

The IRS resurrected Form 1099-NEC to clarify contract workers' compensation from miscellaneous income. I think the intent is to get contract workers to pay Self-Employment tax and fund their Social Security Accounts. 

I don't see a student's stipend as contract work, therefore I would not file Schedule C, I would not report it as Self-Employment.

That leaves Other Common Income, such as a "one-time thing" or a Scholarship.

Reporting the income as Scholarship has its advantages. 

It will be treaded as "Earned Income" in regard to a Dependent's Filing Requirement, contributing to an IRA, and possibly increasing an Earned Income Credit. 

On the other hand, the IRS may have their eye open to see that the 1099-NEC is reported. 

If the advantages of reporting the 1099-NEC as a Scholarship are not relevant to the student's situation, you can enter the 1099-NEC as a "one-time thing"

"Other Income Section"

"Income from Form 1099-NEC"

Describe it as a Stipend 

Select "This is not money earned as an employee or self-employed individual" 

This will put the amount on Schedule 1 Line 8z.

If you want it reported as scholarship on Schedule 1 Line 8r, enter it in the Education Section. 

If you want to report it as Scholarship, but want to ALSO include the 1099-NEC, do both entries as well as an "Adjusting Entry" to negate the 1099-NEC.

After making both entries listed above, make an additional entry for the 1099-NEC with the amount as a negative number and type something like "Fellowship on NEC reported twice" so the IRS can trace it on your Schedule 1. 

@ellyragone 

[ellyragone]

Belated thanks.  Trying to get back to this now after work consumed me this week.  I really appreciate your input.  Just to be sure, all of my daughter's income (W-2 income, like a dollar in interest income, and then this academic stipend) add up to less that $12,950.  I thought she didn't have to file at all when that's the case.  I don't want to pay for her to file if she doesn't have to file.  Can you clarify - does she need to file because of the NEC even if she's under $12,950?  Thanks!

[Hal_Al]

Q. Can you clarify - does she need to file because of the NEC even if she's under $12,950?  

A. Yes, probably. The $12,950 filing rule does not usually apply when a 1099-NEC  is issued.  In simple terms, the filing requirement for a 1099-NEC is a mere $400*.

That said, you could take the position that the 1099-NEC is erroneous and the $12,950 rule applies because the income is really taxable scholarship. So, she doesn't need to file.  But the IRS still has a 1099-NEC in their system and that could trigger an IRS notice. 

*A dependent must file a tax return for 2022 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,950 (2022).
2.          Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1150 (2022)
3.          Unearned income over $400 (2022) and gross income of more than $1150 (2022)
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2300 ($12,950 if under age 18)
5.          Other self employment income over $400, including money on a form 1099-NEC. Even non dependents must file if they have a 1099-NEC over $400. 

[ellyragone]

Thank you so much.  Would this still be true if the school reissues as a 1099-MISC?  I don't want to bother with the school if she still will need to file ... THANKS!

[Hal_Al]

Q.  Would this still be true if the school reissues as a 1099-MISC?

A.  Simple answer: Yes.  Income on a 1099-MIsc is usually unearned income  and thus, subject to the $1150 filing threshold, above.

Technically, if you're going to treat it as taxable scholarship*, rather than misc./other income, the $12,950 filing threshold applies.  But still the IRS has a 1099-Misc. in their system.  They're not as aggressive about the 1099-Misc, as they are with the 1099-NEC. 

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (EIC. IRA contributions or additional child tax credit).

[AliciaP1]

More specifically to what Hal_Al posted, the filing requirements for self-employment income from a 1099-NEC are net income over $400.  Since the stipend was issued on a 1099-NEC you can consider What self-employed expenses can I deduct? to see if ordinary and necessary "business" expenses could be applied to reduce the income below the threshold.

@ellyragone  

[Edited 3/6/2023 | 7:26 AM PST]