Reporting a Fulbright Grant as wages, how can I deduct airfare/lodging/etc?

[dougrowe]

I'm intentionally using exactly the wording of a subject heading from the past, which got an inconclusive answer and last reply is it should be posted as a new thread, due to 2018 changes in tax law (but apparently it never was). My girlfriend got a Fulbright Scholar Award to teach and research for 4 months in a foreign country this past year, and did not receive a W-2 or 1099. If she reports the gross amount she received (most of which is to cover costs of airfare, lodging, etc...) as misc/other income, there does not seem to be a way to deduct expenses. Yet, it seems clear that, for example, if Fulbright includes money to pay for airfare, the cost of that airfare must be a deduction - it makes no sense that airfare reimbursement would be considered taxable income with no way to declare deductions. I've thought of several alternatives, including only showing the net income (after subtracting expenses) as misc/other income, but I'd like to know the correct way to do this. There must be at least a few hundred other Fulbright Scholar Award winners each year with the same question! Someone we know did all of this on a Schedule C, but then we read that this is *not* the correct way to do it for a university professor who does not actually have a regular self-employed business.  What is the correct way to show income *and* deductions for a Fulbright Scholar Award?

[AmyC]

The IRS has a publication, Fulbright Grants | Internal Revenue Service.

The report explains that It may be all taxable or partially taxable. The difference is if you are reporting it as a Scholarship or Wages. There is also a section on deductions, exclusions and credits.

I am assuming that your girlfriend worked this as a job so the Fulbright scholarship would be considered wages in this case. She may qualify for the  Foreign Earned Income Exclusion  or the  Foreign Tax Credit. However, if the purpose was research and part of a degree program, then it is scholarship.

As for the airfare, it seems to have been a temporary assignment - less than one year and is covered in Publication 463 (2022), Travel, Gift, and Car Expenses. I believe the employer considered the travel as a fringe benefit, which makes it fully taxable. In addition, employee expenses have been mostly eliminated since 2018.

Pub 463 states: 

Reimbursement for personal expenses.

If your employer reimburses you for nondeductible personal expenses ... your employer must report the reimbursement as wage income in box 1 of your Form W-2. You can’t deduct personal expenses.

If this scholarship was a job, enter the income as other wages not reported on a w2. Follow these steps:

1. Go to federal
2. Income and expenses
3. Less Common Income
4. Miscellaneous Income
   1. Other income not already reported on W-2 
5. Other wages received 
6. Wages earned as a Household Employee > Leave Blank
7. Sick or Disability pay > Leave Blank
8. Any Other Earned Income > Yes
9. Enter Source of Other Income > Other
10. Enter the description and amount

Deductions are available for 1099-MISC entries related to school. If she was doing research. Then pub 463 states:

you may deduct from your taxable Fulbright grant income any amounts you spent on (1) tuition, (2) fees, (3) books, (4) supplies, and (5) equipment required for your courses.

If she is entering this as a scholarship:

1. Log into the return
2. Federal
3. Click on Income
4. Scroll to the bottom section,  Less Common Income
5. Select Miscellaneous income, 1099-A, 1099-C, start
6. Select Other income not already reported on a W2 or 1099, start/edit
7. Other wages? Yes, continue
8. continue, continue
9. Other Earned Income, yes, continue
10. Source? other, continue
11. Description - Fulbright, amount
12. Done

If there any educational deductions as listed above, then go through the same steps 1-10

11. Description - educational expenses

12. Amount is entered as a negative

13. Done