If this is truly a scholarship (and it sounds like it is) the income shouldn't have been reported on a 1099-MISC. See page 2 of the IRS instructions for how scholarships and grants should be treated.
In order to report the income so that the IRS knows it's been reported, but to also show the income and the higher Standard Deduction correctly, you would report the 1099-MISC as you already have, then go back to the Federal Income section and enter a negative figure under Miscellaneous Income, scrolling all the way down to Other reportable income.
Next, enter the scholarship income in the Deductions and Credits section of TurboTax, under Education, Expenses and Scholarships. As you go through the section, you will reach the screen Did You Receive a Scholarship or Grant in 2020? Enter the correct figure there, and as you continue, on the screen Did You Pay for Room and Board with a Scholarship or Grant? This also includes expenses for research, travel, etc. Check Yes, and enter the amount in the box. This will result in the income being reported on Line 1 of your daughter's 1040, with SCH (for scholarship) noted.
Please see this discussion of the situation, which does happen frequently.
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So I have a fellowship stipend that I'm reporting under "Other reportable income". This is fine, but TurboTax automatically imports this income to my state return, but my state does not tax fellowship stipends. Is there a way to get around this?
You can adjust the fellowship amount to $0 or your can add a negative adjustment.
- In New Jersey, go to Other Non-Wage Income
- You will see a Description and Amount
- Change the amount to $0 or enter another line "Nontaxable portion" and enter a negative number.
Part of your fellowship may be taxable. Champ @Hal_Al asked the New Jersey Department of Taxation about this issue. They said additional compensation (amounts for general living expenses such as room, board, travel, etc.) paid in excess of tuition and the related expenses are not paid exempt.
Read the discussion here: Are scholarships taxable in New Jersey?