1099-NEC Scholarship

[taxrookie999]

My son received a 1099-NEC for his $1500.00 scholarship for writing an essay for a large pharmaceutical corporation. Does he need to pay taxes on this? This amount does not exceed Box 1 on his 1098-T issued from his University. Can I add the $1500.00 to the Box 1 on his 1098-T and ignore his 1099-NEC? 

I'm not sure why the company issue a 1099-NEC. He's not an employee and didn't provide any services for them. 

If we take a less aggressive stance on this, Does he need to file his own return because of the 1099-NEC and pay taxes? or Can I do this under my return?

Please share if you have encounter this scenario. Your help is appreciated.

Thanks,

Al

[taxrookie999]

correction...

I meant "Can I add the $1500.00 to the Box 5 on his 1098-T and ignore his 1099-NEC? "

Thanks,

Al

[Hal_Al]

Why are you calling this a "scholarship", rather than a "prize" or something else.  As a rule, large companies, with scholarship programs, know how to do the paperwork properly.  

You do not report this on your tax return.  If it goes anywhere, it goes on his return.  Your problem (as you probably already know) is  a1099-NEC is a red flag at the IRS. Adding it to box 5 of the 1098-T is not going to do that. Actually, TT has an entry point, in the education interview, for "scholarships not shown on the 1098-T". But that's not going to "tag it" to head off an IRS inquiry. 

If he reports it as other income (instead of self employment), he's still gonna owe $40 in tax ( a dependent only gets a $1100 standard deduction), with unearned income.  Scholarship is classified as earned income, for calculating the standard deduction, so it won't get taxed (standard deduction is earned income + $400, up to $12,950). 

Accepting your statement, that it's scholarship, here's how I would do it:

1. add the scholarship at scholarships not shown on the 1098-T.  When asked how much of the scholarship was used for room and board, enter $1500 (this gets it to line 8r of schedule 1 where taxable scholarships go). Scholarship used for tuition is usually not taxable. You're only doing this to force an entry onto the tax forms for the IRS to see. 

2. Then, report the income as other line 8z, Schedule 1 income  (enter in TurboTax at the 1099-NEC screen and identify it as sporadic income).

3. Then enter a line 8z deduction, for the same amount.  In TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
Scroll down to:
-Less Common Income
      -Misc Income, 1099-A, 1099-C
       - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description. Call it something like "1099-NEC amount reported as scholarship". 

There are other options. Ideally, you get a corrected 1099-NEC from the company. You can just ignore it and hope you can explain it away if the IRS contacts you. 

Duplicate post. Also see: https://ttlc.intuit.com/community/college-education/discussion/re-do-i-have-to-report-my-son-s-schol...

[taxrookie999]

This was indeed a scholarship program that was called "2022 College Scholarship Awards".  My son summitted the application along with a personal essay as required. Then it goes to the judging committee. There were four College Scholarship Awards of $1500 offered. My son was one of the recipients. 

Thank you for the step-by-step instructions you've given.

For clarifications..

1.  Do I use those instructions on my tax return? so my son doesn't have to file. 

2.  or does my son have to file his own return and follow your instructions?

Thank you.

[Hal_Al · Accepted solution]

Q  Do I use those instructions on my tax return? so my son doesn't have to file. 

A.  No, that's not allowed*.

Q. or does my son have to file his own return and follow your instructions?

A.  Yes.  

He's only filing this way to head off an IRS inquiry about the 1099-NEC.  He probably doesn't have enough income ($12,950) to normally be required to file.  Technically, it's not even taxable, since it doesn't exceed box 1 of the 1098-T. 

You do not report his income on your return. If it has to be reported, at all, it goes on his own return. If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2022 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,950 (2022).
2.          Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1150 (2022)
3.          Unearned income over $400 (2022) and gross income of more than $1150 (2022)
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2300 ($12,950 if under age 18)
5.          Other self employment income over $432, including money on a form 1099-NEC

*If his only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on your return, using form 8814. 

[taxrookie999]

Thanks so much for your help.

[taxrookie999]

If my son file his own tax return as discussed, can I still be able to file as head of household?

Thanks

[Hal_Al]

Q. If my son file his own tax return as discussed, can I still be able to file as head of household?

A. Yes, because  he is still your dependent.

A child filing his own tax return does not disqualify him from being his parent's dependent. In TurboTax, he indicates that somebody else can and will claim him as a dependent, at the personal information section.  TT will check that box on his  form 1040.

[taxrookie999]

To follow up on this situation, I have 4 questions..

1.  I'm filing my tax return and entered my son's 1098-T information on my return and claiming the AOTC. I'm not entering any information on my son's 1099-NEC Scholarship on my return. Is this correct?

2. We're about to file my son's tax return. Does he need to input the 1098-T information on his return too? 

3. or... does he just need to input his 1099-NEC Scholarship on his tax return and that's it?

4. He also have a w-2 earnings of $1400, and a 1099-INT earnings of $15. All these amounts are not high enough to require to file a tax return. Does he need to input the w-2 and 1099-INT info on his tax return as well?

[Hal_Al · Accepted solution]

Q1.  I'm filing my tax return and entered my son's 1098-T information on my return and claiming the AOTC. I'm not entering any information on my son's 1099-NEC Scholarship on my return. Is this correct?

A1. Yes

Q2. We're about to file my son's tax return. Does he need to input the 1098-T information on his return too? 

A2. Yes, to enter the additional scholarship as described above, if that's the route you're going to use.

Q3. or... does he just need to input his 1099-NEC Scholarship on his tax return?

A3.  Both. As described above

Q4. He also have a w-2 earnings of $1400, and a 1099-INT earnings of $15. All these amounts are not high enough to require to file a tax return. Does he need to input the w-2 and 1099-INT info on his tax return as well?

A4.  Yes, all income is reportable. 

[taxrookie999]

Thank You!