1099-Misc for a minor child

[khura1]

I have a minor child who received $3500 as a stipend/scholarship for summer research internship at a Federal Government Lab. It is reported on a 1099-MISC in Item #7 non employee compensation. She is a full-time high school student. How do we file? Does she have to pay self-employment tax?

[GiseleD]

Please see Tax Expert TomK's advice here/below:

There will be a few steps to follow to report your stipend correctly because of the form 1099-MISC.

First, report the form as follows:

• Open (continue) your return if it's not already open.
• In the Search box (top right-hand corner), type “1099-misc’
• Click on the Magnifying Glass icon.
• Click on “Jump to 1099-misc” link highlighted in Blue.
• Answer the Step-by-step instructions.

Since box 7 reports the stipend, you would have to report it as self-employed income, then enter the same amount as your "business" expense.  This will ensure that form 1099-MISC is reported for matching purposes, but the amount is not taxable as self-employment income. 

Go to:

1.   Federal Taxes

2.   Wages and Income

3. Self-Employment, Select Income and Expenses - follow the interview questions; you would report the stipend as if you own a business; once general questions are answered, you would enter the stipend as an expense (you can create your own description). The end result: form 1099-MISC is reported, but the income is not self-employment income--because it shouldn’t be.

[khura1]

Thanks GiseleD for your prompt response. Entering the same amount as expense results in zero-taxes; however, should we report this stipend under any other category.

I looked at the link for TomK's advice (here/) you have referred to:

Do we need to follow the following advice from TomK as well? If we follow this advice, my daughter will end up paying $241 in federal taxes, which is the same amount if we don't indicate $3500 as a business expense.

TomK's advice: REPORT STIPEND INCOME CORRECTLY

To report stipend income in TurboTax, you must visit Deductions and Credits, Education Expenses section. You must answer all the questions, the taxable amount will be computed as the excess of your scholarship over the qualified education expenses.

1. Federal Taxes
2. Deduction & Credits  
3. Scroll down to Education
4. Select Expenses and Scholarships
5. Follow the prompts… It will be somewhat confusing as you are answering the questions as if you claim an education credit… answer the initial questions and select that you did not receive form 1098-T. You will be asked for school’s name and address, just fill out the program information you are in... You will eventually see a screen "Did (your name) receive a scholarship or grant in 2016? Please enter your stipend in other Scholarships/Grants/Fellowships; this will ensure that the stipend is taxable on line 7 form 1040 as wages.

Also, here is what I found regarding the SEAP stipend my daughter had received (https://seap.asee.org/faq:(

What is ASEE's policy on taxation of my stipend award?

ASEE must report all stipend, internship support, health insurance and book allowance payments made to Recruitment Participants under the Naval Research Enterprise Internship Program. At year end, ASEE will provide participants and the Internal Revenue Service (IRS) with the informational Form 1099-MISC recording the amount paid to the participant during the tax year. ASEE does not withhold taxes from participant payments. Under current laws and regulations, participants are responsible for submitting quarterly estimates of income taxes to the IRS and paying the amounts due. Participants may have a similar liability with respect to state and/or local taxes depending upon the state and/or locality where the participant resides. 

You are considered guest researchers and are not considered employed by either the United States Government, the Department of Defense, the US Navy, the Office of Naval Research, any ONR lab or ASEE. If you have further tax questions, please contact the IRS, as ASEE is prohibited from giving tax advice.

Regards and thanks in anticipation of your prompt help.