In 2022 I applied for a matching grant from my locality for some historical preservation work. I paid $26K for the entire cost of the work and then they granted me $13,000 to match 50% of the cost. They sent me a 1099-NEC for $13,000 and the form itself is just free text with no boxes. In the free text they just say 'Direct Sales Indictor" and "Federal Income Tax Withheld" but with no other information. No taxes appear to have been withheld despite what it says. I don't believe I should be required to pay self-employment on this grant. Should they have reported this income in some other way? How should I report this income in Turbo?
This is taxable income but likely not self-employment income in your case.
In TurboTax Online, report the income:
At the screen Does one of these uncommon situations apply, select This not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby.
The income will be reported on the Federal 1040 tax report on line 8 as other income.