Help for my full time undergraduate student who received a grant for school project team

[kabramson99]

I thought my son's taxes would be simple but I've hit a snag.

He is a 20 year old full-time student at a private university in Ohio.  He is a member of the school-funded rocket team. It's not required for his major, but an extracurricular. In order to complete a required project for this team, he applied for a grant for supplies/materials and was granted $900 in TY 2021.  He received a 1099-MISC for this grant.

We live in Virginia and he meets criteria for a full-time VA resident.  He also had earned income in VA on school breaks of approx $8500 in 2021. He had withholding for Fed and VA from this job.

My questions:

1. Am I entering the grant correctly?  I was surprised to see that once I entered it, he had a reduction in his refund.  I assumed since his total income was below the standard deduction that he would get all of his withholding as a refund. Also TT says that VA and Ohio will both tax the grant. 

2. Does he need to file an Ohio return? The only Ohio income is the $900 grant. I don't want to pay an additional $45 to purchase another state just for this one child. When I went to the Ohio state taxation website it seemed like he needed to. So I went to create an account to file for free.  It says you need either an Ohio driver's license or your past year's ohio return to create the account. He has neither.  Email sent yesterday to ask how to fix it.  Got autoresponder that says 2-3 business days for reply, perhaps longer due to staffing.

[DanielV01]

Question 1:  We cannot see your account or return, but what you describe sounds like you are entering the grant correctly.  It is correct that the grant would end up providing taxability to your son's return.  As a dependent filing taxes, his standard deduction is not $12550, but rather his earned income +$350, up to a maximum of $12550.  Since the grant is more than $350 and is considered unearned income, the grant will produce (based on your numbers) about $550 of taxable income, which is likely $55-ish of refund reduction.

Question 2:  See this website for Ohio filing requirements:  Who Must File - Ohio Department of Taxation.  There is a workaround you can try in case you are unsure.  Your son can set up a TurboTax Online account, and you can prepare the return up to the point of clearing all the diagnostics.  As long as you do not register the product, you will not need to pay for that preparation.  But this will let you know if your son has a tax liability in Ohio or not.  If he does not, then you can use the option on the website link above to file the IT-10 form instead of the full tax return.  While this is prepared outside of TurboTax, there is no charge involved.

[kabramson99]

Thank you so much for your comprehensive answer.  Appreciate knowing that we are putting the grant in the correct place, and thanks for clarifying the standard deduction. It makes total sense. The workaround worked perfectly for OH too.