EIC for 1099-MISC Scholarship

[cbeauhilton]

We are married with 3 children filing taxes jointly. One of us is in graduate school and receives a full tuition scholarship (1098-T) while the other works part time (total yearly income <$5,000). We receive an additional $7,000 scholarship for room and board, which as we understand is a taxable scholarship. The school reports this scholarship on a 1099-MISC. How do we report this? Does the 1099-MISC apply for the Earned Income Credit?

[Opus 17]

You never report your child's income on your return.  A child's income is reported on a return in the child's own name (except for certain investment income in special circumstances).  If your child has income and files a tax return this does not necessarily stop them from being your dependent or affect your eligibility for EIC.

Is the 1099-MISC for the taxable part of the scholarship being issued in your child's name or the parent's name?

[cbeauhilton]

My husband is the one in graduated school. Our children are all 5 years and younger.

[Hal_Al · Accepted solution]

Scholarships are not usually “earned income” for the EIC. On the other hand, scholarships are not usually reported on a 1099-Misc. Did you perform some service, like research or teaching, for the scholarship? Is the $ amount in box 7 or box 3 of the 1099-Misc? If box 7, then it is considered earned income. It is also considered self employment income and subject to self-employment (social security and Medicare) tax, in addition to income tax. It goes on schedule C, then line 12 of form 1040

If the amount is in box 3 of the 1099-Misc, it goes on line 21 of form 1040 as other income and is not eligible for the EIC

[Opus 17]

Nearly all graduate fellowships are unearned income and no "work" is being performed, even if part of your educational duties include showing up every day and writing papers or TA-ing a class (which "feels" like work, but is not "earned income because it is all still technically "education.")

Examples of earned income would be -- suppose your graduate program requires you to TA one course as part of your training.  But you are recruited to TA a second course because of a shortage.  Any payment for TA-ing the first course is unearned income but TA-ing the second course may be earned income.  (It would not be usual to receive a W-2 for that second course).  

The income should be reported in box 3 of the 1099-MISC and there is a checkbox for "fellowship income" on a page of special circumstances after you enter the form.

The scholarship amount is included in your adjusted gross income for purposes of determining your overall qualification for EIC but is not included in earned income for calculation of the EIC amount.

[cbeauhilton]

Thanks, Hal-Ai and Opus 17. This was exactly what we needed.

[maglib]

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