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

[ellyragone]

Thanks, @KrisD15 .  Re: "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."

I don't think the advantages matter, so I thought I'd follow this one-time thing recommendation so that I just report the NEC and avoid any potential problems.  But when I do, she has to pay taxes on this stipend.  Since it is a scholarship/stipend and should be subject to the $12,950 filing requirement, it seems the best option is to do the offset option - that is, put it in education and also do two NEC entries, one for the amount and one for a negative of the amount.  Am I understanding you correctly?  Thank you all so much!

[Hal_Al]

Q.  Since it is a scholarship/stipend and should be subject to the $12,950 filing requirement, it seems the best option is to do the offset option - that is, put it in education and also do two NEC entries, one for the amount and one for a negative of the amount.  Am I understanding you correctly? 

A. Yes.

[ShirlynW]

No. The stipend should not be entered in Education and two 1099-NEC entered.

I agree with @ellyragone that the stipend should be entered as a one-time NEC. According to IRS Pub  970, page 5 states, "stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These include amounts paid to you to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in this chapter. Taxable amounts not reported to you on Form W-2 are generally included in gross income."

For more information on tax free  scholarships or fellowship refer to page 5 of IRS Pub. 970.

Use the Table below to figure if your stipend is taxable or should be excluded from your gross income.

To enter the college stipend reported on 1099-NEC:

1. Open your TurboTax account.
2. In the search box enter "1099nec."
3. Take the "Jump to 1099nec" link.
4. On the Screen, " Did you get a 1099-NEC," select "Yes."
5. Add a 1099-NEC.
6. Enter the information.
7. Enter the reason for the 1099-NEC.
8. Select, "This is not money earned as an employee…"
9. Done.

[edited 03/12/2023 1:31 PST]

[ellyragone]

Thanks very much.  Another follow-up: She lives in NJ and attends college in OH.  She has one w-2 from NJ (summer income), and then she has one w-2 from OH (work study).  All of her income (w-2, interest, and stipend) does not exceed the $12,950 filing threshold.  TT shows her as owing no federal and NJ taxes and as being owed $6 in a refund from OH.  I plan to file her federal taxes based on everyone's input that the IRS will be looking for a filing based on the NEC alone.  Does the same hold true for NJ and OH?  I hate to pay the TT filing fees if she doesn't have to.  But if the states will be looking for filings based on the NEC, I guess we have no choice.  Thanks, all.

[ellyragone]

Thanks for your input, @ShirlynW .  I'd love to hear others' reactions - @Opus 17 , @Hal_Al , @KrisD15 ?  My understanding from prior posts was that by adding it to education but indicating that it was used for room and board would make it taxable but pursuant to the $12,950 filing requirement, so she would owe no tax because all of her income (w-2, interest, and taxable stipend) is under this amount.  Please correct me if I've misunderstood others' input to date.  Thank you!

[Hal_Al]

She is not required to file an Ohio return. 

[ellyragone]

Thanks, @Hal_Al .  Same for NJ?  And any thoughts on @ShirlynW 's post today?  

[Hal_Al]

I can't comment on NJ.  See https://www.state.nj.us/treasury/taxation/njit23.shtml

I  disagree with entering it as other income.  That puts on line 8z of Schedule 1, where's it treated as unearned income for purposes of the dependent standard deduction calculation ("$12,950 filing requirement"). 

You want it on line 8r and that requires entering as scholarship. From what you describe, it should be treated as scholarship/fellowship (as most "stipends" are). 

[AmyC]

NJ shows a filing requirement of $10,000 from all income for single filers. See NJ instructions. Since she is not required to file a return for federal or either state, you do have the option of not filing and wait to see if the IRS sends a letter asking questions. The IRS does get all the same forms and may determine that a return was not necessary. If you feel there could be some room for misinterpretation or you want to avoid any possible future issues, then go ahead and file returns.

[ellyragone]

Thank you.  I'd love to avoid the fees, but I don't have a good sense of the risks involved, and I'm a pretty risk-averse person.  If there is a substantial likelihood that the IRS will look at her forms and know that the NEC wasn't for self-employed work such that the $12.950 threshold applies, great! Prior posts make me worry, though ... I appreciate folks sharing what they would do to help us decide the most prudent and responsible course.  

[Hal_Al]

Q. If there is a substantial likelihood that the IRS will look at her forms and know that the NEC wasn't for self-employed work?

A.  Nobody really knows.  You'll only get opinions.

My opinion is that income on a 1099-NEC is higher risk than other forms.