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paisa
New Member

Have a NSF fellowship ... Software is showing taxes of $6000 on $22000 of AGI (this is unearned income), after adjusting for Tuition. Seems very high. Is this an error?

 
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4 Replies
Hal_Al
Level 15

Have a NSF fellowship ... Software is showing taxes of $6000 on $22000 of AGI (this is unearned income), after adjusting for Tuition. Seems very high. Is this an error?

It appears that TurboTax (TT) is calculating Self employment (SE) tax (social security & Medicare tax) on the income. Verify this by looking at line 57 on Schedule 4.

How was the income reported to you (1098-T, 1099-Misc, etc)? If 1099-Misc, what box #? What did yo do for or with this money?

Basically,  if you were paid for your work, it is subject to SE tax. But, it also depends on who benefits. I this is you own personal research project, it s treated as taxable scholarship. If it has commercial applications, it's self employment income.

References:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/individuals/international-taxpayers/fulbright-grants">https://www.irs.gov/indivi...>
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3091932-is-a-fulbright-teaching-grant-to-a-foreign-country-that-pa...>

Have a NSF fellowship ... Software is showing taxes of $6000 on $22000 of AGI (this is unearned income), after adjusting for Tuition. Seems very high. Is this an error?

Or the kiddie tax.

Have a NSF fellowship ... Software is showing taxes of $6000 on $22000 of AGI (this is unearned income), after adjusting for Tuition. Seems very high. Is this an error?

Fellowship is not subject to SE tax even if box 7 is used.

Have a NSF fellowship ... Software is showing taxes of $6000 on $22000 of AGI (this is unearned income), after adjusting for Tuition. Seems very high. Is this an error?

There are two possible situations here.  However, if filing online, you can't print your forms until after you pay, so you will likely need to pay, (DON'T go to the last File step), print a draft copy to review, then fix any errors if needed.

If you are single, under 24, a full time student, and at least one parent is still alive, your unearned income is subject to the "Kiddie tax". This is a tax on a child's investment income, and it is very high, to discourage parents from trying to hide investments in their childrens' names to get lower tax rates.  Unfortunately, the tax does not discriminate between stocks and bonds held in a child's name, or the child's unearned income such as a scholarship or fellowship.  If you have form 8615 in your return, that't the kiddie tax and there is nothing you can do but pay it.

Or, your 1099-MISC income is being listed as self-employment rather than a fellowship, and is subject to self-employment tax on schedule C and schedule SE.  This is incorrect, as a student, your income is not self-employment and is not "earned" from working, even though you might seem to "go to work" every day and be required to do research, write papers, etc., and even if the income is in box 7 instead of box 3.  You are considered a student and the income is unearned,  If you have a schedule C and SE, you need to delete the 1099-MISC to get those forms deleted, then re-enter it.  Answer all the test questions as No (no intent to earn a profit, not similar to your regular work, not planning to do the same work in the future, etc.).  Although this may seem counter-intuitive, it is the correct answer for someone who is technically a student; you aren't "working."  Also, I believe there is a check box on a page of special circumstances for "this is a fellowship".  Make sure that box is checked.

Then, print another draft and look it over before clicking the final "transmit" step.

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