REPORTING SCHOLARSHIP INFO

[Calmal]

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?

[DaveF1006]

To clarify, what state?

[Calmal]

California. 

[DaveF1006]

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:

1. With your return open, go to federal
2. Deductions and Credits
3. Education
4. Expenses and Scholarships (Form 1098T)

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:

1. Federal 
2. Wages and income
3. 1099 MISC and Other Common Income
4. Income from 1099 NEC
5. When you enter the reason for the income, indicate it is Scholarship income
6. The next screen is critical.  It asks if one of These uncommon Situations Apply. Here you will say "This is not money earned by an employee or self-employed individual.... Selecting will keep this 1099 NEC from being reported as self-employed income,

[bcoates94]

What if only part of the 1099-NEC amount is for a scholarship.  For example, if Box 1 says $6,000 but $3000 of that was paid directly to the University.  Using the above suggested method, all of the 1099-NEC would be included as self-employed income.  I did not receive a 1098T but have documentation from the University showing the exact amount paid by the scholarship.  Thanks.

[AmyC]

The 1099-NEC is not self-employed income for scholarship. You will want to enter the income and subtract the amount used on Qualified Education Expenses - Internal Revenue Service.

First you will enter the 1099-NEC as sporadic or hobby income rather than self-employed. Follow these steps:

1. Open your return to the federal income section
2. Select income from Form 1099-NEC
3. Enter the information from your form
4. Continue
5. Describe the reason 
6. Continue
7. Does one of these uncommon situations apply?
8. Select not earned, sporadic, hobby - the screenshots different - 
   1. online, select hobby 
   2. desktop chooses sporadic
9. Continue
10. See the NEC summary
11. Done

Second, remove the qualified expenses.

1. Open to federal income
2. Locate Miscellaneous Income, 1099-A, 1099-C, Start
3. Scroll to the bottom
4. Other reportable income, Start
5. Other taxable income?
6. Select YES
7. Description 1099-NEC for education expenses
8. Amount, enter your negative amount, use a minus sign in front.
9. Continue