1099-MISC for state-granted stipend

[mandolin-ortega]

I received a stipend payment for California's Mental Health Loan Assumption Program (through OSHPD) in which I receive a certain amount paid directly to my loan lender in return for 12-month employment at a non-profit mental health organization.  I've received this stipend for the last four years and this is the first time I'm suddenly receiving a 1099-MISC from the state that awarded the stipend to me.  I thought this wasn't taxable?  How do I go about this?  There's no way I suddenly need to pay $2500 in taxes....do I??  One suggestion included documenting it as a business expense, but TurboTax requires me to upgrade to a self-employed edition.  I also don't want to do that if this really is taxable.  Help!

[DS30 · Accepted solution]

Because you received a 1099-MISC, the IRS will also have received a copy. Therefore you will need to report this 1099-MISC on your 1040. However, you can also report a negative amount under miscellaneous income as "Exempt State Grant" as it related to this 1099-MISC. Make sure that the negative basis amount being reported does NOT exceed the income reported on the 1099-MISC.

Here is how to enter both the 1099-MISC and the negative amount for the basis information as other miscellaneous income

Once you have signed into your TurboTax Account (for TurboTax Online sign-in, click Here), select "Take Me To My Return" and type "1099-MISC" in the search bar then select "jump to 1099-MISC". TurboTax will guide you in entering this information

1. Enter your 1099-MISC information
2. Click through the screen for work description (do not associate this 1099-MISC with all work listed)
3. Does one of these uncommon situations apply? - None of these apply
4. Did the involve work that's like XXXX main job? - No
5. How often did (you) get income for ? Just leave as 2017 only (even if you received a similar payment in a prior year, select 2017 only)
6. Did the involve an intent to earn money? No

Now your income will be reported on line 21 on your 1040.

To enter the negative amount but only up to the amount of income being reported on your 1099-MISC,

1. Click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages and Income”
3. Next click on "jump to full list" or “see all income”
4. Scroll down the screen until to come to the section “Less Common Income”
5. Choose "show more", then Miscellaneous Income
6. Choose "Other Reportable Income" and enter this information here under other taxable income 
7. You can title it "exempt state grant related to 1099-MISC income".

[edited 2/12/2018 - 7:49PM PST]

[alby817]

Also in the same situation and everything work until the portion talking about entering the negative amount.

[ryanfuimaono]

Yes, same here.

[DS30]

see updated answer

[taxcompli]

If amount of money I received appeared on box 7 instead of box 3 in 1099 form, do I follow the same steps? or I need to report it under self-employed and entered the amount as business expenses to adjust it?