2019 Tax Return for Summer Internship stipend

[m126]

My full time undergrad student son has received a 1099-MISC for Summer Internship stipend in an amount of $5,500 reported in box 7. His other income from work as a Teacher Assistant during the year was $470 reported on separate W-2. He is claimed as a dependent on our (his parents) federal return. 

Two questions:

1. Does he need to file federal taxes? 

2. If he does need to file federal taxes, here is the problem:

When we use "Income from Form 1099-MISC" section in Income Summary, Turbo Tax Premier calculates that he owes $585 allowing standard deduction of only $1,100. When we dig into worksheets, TT considers the $5,500 as "unearned income" which appears wrong. 

If he does need to file taxes, could you please outline exact steps in TT to get the correct calculation? 

Thanks,

M

[GiseleD]

1) Yes, he needs to file.

2) Please see Tax Expert TomK's advice here/below to enter this properly:

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

If 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.

[m126]

Thanks Gisele!

Yes, we saw TomK's article. TT menu is slightly different at least the one we are running (Premier 2019). Under Federal Taxes -> Wages & Income there is no "Self Employment". There is a section called "Business Items (Business income and expenses, K-1s, farm income)". The first topic there is Business Income and Expenses (Sch C), which I think is what TomK has referenced for the 2018 return.

The challenge is that if one does go there, there is a lot of information that is expected to be entered about the business (business name, business address, EID (albeit if exists), services/products type (albeit MISC code could be used)). Business expenses have to be classified as well.

I can see this would cancel out the tax but not sure this is really an intended path for such a scenario?  Why does not TurboTax qualify this income reported on 1099-MISC as "earned income" when figuring out the standard deduction for dependents? It appears wrong.

thanks,

M

[GiseleD]

You will have to build out the business information in order to create the dollar-for-dollar expense. This is the only way to get the intended result.