College students are not exempt from income tax. They are subject to tax just like everyone else. Since the income is reported on a 1099NEC it is considered to be self-employment income, for which he will owe self employment tax for Social Security and Medicare, although it is not enough to pay ordinary income tax on.
MY DEPENDENT HAD A JOB
If your dependent has a W-2 for his after-school job, summer job, etc. you do not include the information on your own return. You can still claim your child as a dependent on your own return. He/she can file his own return for a refund of some of his withheld wages (he won’t get back anything for Social Security or Medicare), but MUST indicate on it that he can be claimed as a dependent on someone else’s return. (Supervise this closely or prepare it for him!)
If your dependent’s earnings were over $400 and were reported on a 1099Misc or 1099NEC then he must file a return and pay self-employment tax for Social Security and Medicare.
You might also want to use free software from the IRS Free File versions:
as noted there is no "income" tax to be paid, but there is "Self Employment" tax that would need to be paid.
This tax represents the Medicare and Social Security withholdings that would have occured if the individual was a W-2 employee. Regardless of whether someone is paid via a W-2 or a 1099-NEC, the IRS expects to receive monies for Medicare and Social Security. The method is just different.
The SE tax is 15.3% so when this student completes their tax return, expect to owe $448 (unless there are any expenses that can reduce the $2925).
This is a bit more complicated than previously stated. If the internship is provided by the school, for credit, then it is exempt from Social Security and Medicare, tax (or self-employment tax), even though it is reported on form 1099-NEC. This income would be entered as scholarship income in the education interview rather than as self-employment on the schedule C interview.
If the internship is provided by an outside company, but is for credit, and is a requirement of obtaining a degree, then I believe it is also exempt from self-employment tax.
If the internship is provided by an outside company for general education purposes, and is not a requirement for obtaining degree, then it is in fact, self-employment income.
Here are the IRS rules regarding the student exception to the FICA tax (Medicare and Social Security):
Note that these exceptions apply only to the FICA tax.
I believe student income is also exempt from Medicare tax. Firstly, student income is not considered “earned“ income, it is education or training, even though the student may perform functions that look exactly like a regular job. also, there is no way on a tax return to pay Medicare tax, but not Social Security on student internship income.
@Hal_Al is the ultimate expert on student income situations.
I agree with @TomD8 , a student is only exempt from FICA, if they are a W-2 employee of the college. The schools know this and will usually not withhold social security and Medicare tax.
On the other hand, I also agree with @Opus 17, if the internship is provided by the school, for credit, the 1099-NEC is not the correct way to report it. The student could report it as scholarship income, rather than self employment, and avoid SE tax.
The original poster doesn't say who provided the internship. If a third party, Schedule C is probably correct. A case could be made for the one time gig exception; SE tax could be avoided, but then the "other income" wouldn't be "earned income" for purposes of calculating the student-dependent's standard deduction. Of course, the 1099-NEC is going to be a "red flag" with the IRS.
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