1099-NEC for Student Internship

[bluemax786]

Hello,

My son did a 10 week internship at a University and received a 1099-NEC for the stipend.

TT asks what type of Income is on your 1099-NEC ? and gives this 6 options

Self Employment income;

Farm;

Hobby;

Lawsuit settlement;

Medicaid payments;

Income that should be reported on a W-2;

If I select Self Employment, his taxes go up significantly as he owes Self employment tax.

If I don't any option, and proceed, TT does not include this stipend as Income anymore.

How to handle this situation since none of the 6 options matches correctly to his internship stipend earning ?

Thanks 

[DianeW777]

The stipend is not required to be reported as self employment income. Keep the 1099-NEC in the tax file for your son and delete that form from his return (see the link below.

• If you're using TurboTax Online software and need to delete a form, click here.
• If you're using TurboTax Desktop software and need to delete a form, click here.

Reporting: Taxable, non-W-2 stipends are usually reported on Form 1040, Schedule 1, Line 8r as "Scholarships and grants not reported on Form W-2".

• To enter  scholarships, grants, stipends (With or without a 1099 or a 1098-T):
  1. Click on the Deductions & Credits 
  2. Scroll down to Education (if Education is not there, click on Check for more tax breaks).
  3. Select Expenses and Scholarships (Form 1098-T).
  4. On the Do you want to enter your higher education expenses? screen, select Yes.
  5. Continue with the onscreen interview until you get to the Add any other financial aid screen.
  6. Enter the amount of the stipend in the box Other scholarships, grants, or fellowships
  7. This will be show on Schedule 1, line 8r, then carried with any other entries to the 1040.

@bluemax786 

[bluemax786]

Hello DianeW777

Thank you for  your reply. Appreciate it.

I am in a pickle now on which path to take to avoid the self employment (fica) taxes on this onetime stipend income :

[1] Remove 1099 NEC form and follow your instructions to report the stipend under "Scholarships/Grants"

or 

[2] Use 1099 NEC form and chose HOBBY.

Which one is safer to not trigger an IRS audit ?

Since the IRS has received these 1099NEC details from the payer and expecting self employment taxes. 

The earlier version of TT provided more details for the HOBBY option like below.

This is NOT money earned as an employee or self employed individual ; it is from a sporadic activity or hobby

Here is the link

https://ttlc.intuit.com/community/self-employed-group/discussion/my-1099-nec-form-was-from-an-intern...

I will wait for your guidance. Thanks

[DianeW777]

It's important to include the income on your tax return. You can choose the option that you're most comfortable with and it seems to me that would be entering the 1099-NEC and selecting Hobby.  So number 2 above is fine.

@bluemax786

[bluemax786]

Hello DianeW777

Instead of using "Hobby" on NEC 1099, I plan to go with your original posted option which make more sense and seems accurate.

Reporting:

Taxable, non-W-2 stipends are usually reported on Form 1040, Schedule 1, Line 8r as "Scholarships and grants not reported on Form W-2". 

Reason :

This was a short term training program internship where a stipend was given for a fulltime student.

Showing this as taxable scholarship increases the Std deduction for my "claimed dependent" student which reduces his taxes. If I take the Hobby option his taxes go up since the Std deduction is reduced.    

I think TT should provide an additional option "Internship/Fellowship Stipend for Students" to add to these 6 options when entering the 1099 NEC form which will directly put the amount under Sch1 8r without going thru Expenses and Scholarships (Form 1098-T) section.

Thanks for your help and support.