My daughter received a college scholarship for the 2023 school year from a local law firm. The law firm sent her a form 1099-NEC with the reported amount, which must be claimed on her state taxes, but is not federally taxed and therefore does not need to be reported on her federal return (I confirmed that with an IRS agent). My issue is that when I input the info from the 1099-NEC, it automatically applies the “income” to both her state AND federal taxes. How can I input the 1099-NEC info and have it apply to her state taxes only?
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To clarify, what state?
California.
Scholarship income is taxable income on a federal return as well as on a California State return unless it's offset by educational expenses reported in a 1098T. If there is more scholarship income than educational expense, the excess is taxable income. If there is no 1098 T, then the entire scholarship amount is taxable in both jurisdictions.
To report your 1099 NEC scholarship amount, you can enter it two ways so you won't be reporting in Schedule C.
If You received a 1098T and claim an educational credit:
You may have already recorded the 1098T so you will continue until the reach a screen that says Scholarship and Financial Aid. Here is where you enter the scholarship information. Next question asks if you received a scholarship or grant. Here you will say yes. then a drop down appears, you will enter the amount of the 1099 NEC either as other scholarships and grants or Employer-provided Assistance.
If you did not receive a 1098T, go to:
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