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1099-MISC received for eligible scholarship

I received a 1099-MISC for a scholarship I received that was used for eligible education expenses for past years. Do I need to enter this in the 1099-MISC section or in the educational expenses section where the 1098-T info was entered?

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Level 6

1099-MISC received for eligible scholarship

IRS Definition of Taxable Scholarships:

You must include in gross income:

  • Amounts used for incidental expenses, such as room and board, travel, and optional equipment.
  • Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant. However, you do not need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

Scholarships. Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship
grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported by you to the IRS on any form.
See section 117(b)–(d) and Regulations section 1.6041-3(n)for  more information.
  • If it is earned income, it should be w-2 income. Examples for teaching a class. But if amount is on 1099Misc in box 7 , then report it as a 1099Misc during the interview.  Then enter education expenses in the 1098-T interview and do not consider it scholarship income when you enter your education expenses, it is taxable but your education expenses would reduce your tax liability and allow any education credits (if you enter the scholarship amount here see screenshot, if earned then do not enter as scholarship here, you would be double counting it so for amounts in box 7 do not report under the education interview as you already have it as earned income). If the money is earned income and you have dependents, you may also qualify for EITC.


If it is unearned income such as scholarship or for education only purposes (Box 3 on 1099Misc) it is a optional 3 step process to report (so the IRS sees you reported the 1099 and you negate it and then report it as scholarship, some claim you can just post in education section but the 3 step method will be clearest so the IRS sees the 1099 reported) as follows, note the money is taxable to the extent then only if it exceeds your actual education costs, be clear what the scholarship is allowed for during the interview as if it allows for room & board, you may benefit better from Federal education credits.

To enter the portion for UNEARNED BOX 3 this income in TurboTax Premier follow these steps:

REPORT 1099-MISC

IF box 3 reports, report the form:

STEP 1 (step 1 and 2 are optional to make it clear):To enter/edit a 1099-MISC form:

  • Open (continue) your return if it's not already open.
  • In the Search box (top right-hand corner), type “1099-misc
  • Click on the Magnifying Glass icon.
  • Click on “Jump to 1099-misc” link high-lighted in Blue.
  • Answer the Step-by-step instructions.
  • fill in 1099-Misc as received
  • Describe reason "Scholarship reported on 1099-Misc"
  • None of these apply to me
  • No it didn't involve work like my main job
  • I got it in year 20xx
  • No it did not involve an intent to earn money

STEP 2 (step 1 and 2 are optional): and make adjustment using the steps below:

  1. Federal taxes
  2. Wages and Income
  3. Scroll down to Less Common Income
  4. Select Miscellaneous Income.
  5. Select “Other reportable income”, click ‘Yes’ and you will be prompted to enter Description and amount. Please be sure to write a short explanation such as 1099Misc Scholarship and enter the amount as a negative number.   At this point, the form 1040 will show full amount as taxable AND as a negative adjustment on line 21. The end result: form is reported but not taxable
STEP 3 (REQUIRED): Go to Federal Taxes > Deductions & Credits > Education Expenses > Expenses & Scholarships > Click Yes to enter education expenses > Enter the Payer of the scholarship from the 1099-MISC (see the screenshots in the attachment).  When entering the 1098-T enter it exactly as received.  If you paid more or less than shown (ONLY TUITION & FEES) put the tuitions & fees paid in the area to enter under box 2 TT has a box during the 1098-t.  Room & board and books are reported later.  Scholarships for other periods will have an interview to allocate to another year (note you must add those scholarships when you file that years tax return as they won't be on the 1098-T).Make sure you enter the whole interview, especially entering other education expenses, and the question about the scholarship used for room and board (you enter all amounts that were NOT used for tuition & fees and required books in this area not just the room and board piece) and the area is only complete when you get to the blue box that you must hit "maximize my education credits"). There is a field in this section about the amount for education credits, any amount in this field utilized for education credits may create more of the scholarship as taxable, you may need to reduce this amount to $0 or $4k, the amount needed to get AOTC) Just a note, to the extent a scholarship covers room & board, or travel or other personal expenses it is considered taxable income thay also may qualify you for education credits paid with taxable income and may result in a better tax situation.

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14 Replies
New Member

1099-MISC received for eligible scholarship

is this specifically for college scholarships?  Does this apply to Elementary/Middle Private schools where we received scholarships?
Level 6

1099-MISC received for eligible scholarship

If the scholarship was for a prior year, you should have entered it in that years tax return. You are a cash basis payer and always report cash basis. Let's say though you are billed and paid for 2018 spring tuition in 2017 and were getting a scholarship that isn't reflected in the 1098-T as it will be on 2018's. You MUST report monies for 3 month period of time after. So the scholarship which will be on the 2018 1098-T  must be entered on the 2017 tax return or you may get education breaks you should not be claiming.
The 1098-T is informational purposes and is not necesarilly cash basis, often it is accrual so there be adjustments to it.  You enter it in the education interview and in the scholarship section, there are further questions to allow you to indicate the scholarship was for another year. If you didn't report it in a prior year, or its for 2018  and it would have changed your education credits or created a change in taxes, you must amend the prior year. Any monies related to a future year, you must remember to report then.

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree
at an eligible educational institution.

Candidate for a degree. You are a candidate for a degree if you:
1. Attend a primary or secondary school or are pursuinga degree at a college or university; or
2. Attend an educational institution that:
a. Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and
b. Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency.
Level 6

1099-MISC received for eligible scholarship

IRS Definition of Taxable Scholarships:

You must include in gross income:

  • Amounts used for incidental expenses, such as room and board, travel, and optional equipment.
  • Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant. However, you do not need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

Scholarships. Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship
grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported by you to the IRS on any form.
See section 117(b)–(d) and Regulations section 1.6041-3(n)for  more information.
  • If it is earned income, it should be w-2 income. Examples for teaching a class. But if amount is on 1099Misc in box 7 , then report it as a 1099Misc during the interview.  Then enter education expenses in the 1098-T interview and do not consider it scholarship income when you enter your education expenses, it is taxable but your education expenses would reduce your tax liability and allow any education credits (if you enter the scholarship amount here see screenshot, if earned then do not enter as scholarship here, you would be double counting it so for amounts in box 7 do not report under the education interview as you already have it as earned income). If the money is earned income and you have dependents, you may also qualify for EITC.


If it is unearned income such as scholarship or for education only purposes (Box 3 on 1099Misc) it is a optional 3 step process to report (so the IRS sees you reported the 1099 and you negate it and then report it as scholarship, some claim you can just post in education section but the 3 step method will be clearest so the IRS sees the 1099 reported) as follows, note the money is taxable to the extent then only if it exceeds your actual education costs, be clear what the scholarship is allowed for during the interview as if it allows for room & board, you may benefit better from Federal education credits.

To enter the portion for UNEARNED BOX 3 this income in TurboTax Premier follow these steps:

REPORT 1099-MISC

IF box 3 reports, report the form:

STEP 1 (step 1 and 2 are optional to make it clear):To enter/edit a 1099-MISC form:

  • Open (continue) your return if it's not already open.
  • In the Search box (top right-hand corner), type “1099-misc
  • Click on the Magnifying Glass icon.
  • Click on “Jump to 1099-misc” link high-lighted in Blue.
  • Answer the Step-by-step instructions.
  • fill in 1099-Misc as received
  • Describe reason "Scholarship reported on 1099-Misc"
  • None of these apply to me
  • No it didn't involve work like my main job
  • I got it in year 20xx
  • No it did not involve an intent to earn money

STEP 2 (step 1 and 2 are optional): and make adjustment using the steps below:

  1. Federal taxes
  2. Wages and Income
  3. Scroll down to Less Common Income
  4. Select Miscellaneous Income.
  5. Select “Other reportable income”, click ‘Yes’ and you will be prompted to enter Description and amount. Please be sure to write a short explanation such as 1099Misc Scholarship and enter the amount as a negative number.   At this point, the form 1040 will show full amount as taxable AND as a negative adjustment on line 21. The end result: form is reported but not taxable
STEP 3 (REQUIRED): Go to Federal Taxes > Deductions & Credits > Education Expenses > Expenses & Scholarships > Click Yes to enter education expenses > Enter the Payer of the scholarship from the 1099-MISC (see the screenshots in the attachment).  When entering the 1098-T enter it exactly as received.  If you paid more or less than shown (ONLY TUITION & FEES) put the tuitions & fees paid in the area to enter under box 2 TT has a box during the 1098-t.  Room & board and books are reported later.  Scholarships for other periods will have an interview to allocate to another year (note you must add those scholarships when you file that years tax return as they won't be on the 1098-T).Make sure you enter the whole interview, especially entering other education expenses, and the question about the scholarship used for room and board (you enter all amounts that were NOT used for tuition & fees and required books in this area not just the room and board piece) and the area is only complete when you get to the blue box that you must hit "maximize my education credits"). There is a field in this section about the amount for education credits, any amount in this field utilized for education credits may create more of the scholarship as taxable, you may need to reduce this amount to $0 or $4k, the amount needed to get AOTC) Just a note, to the extent a scholarship covers room & board, or travel or other personal expenses it is considered taxable income thay also may qualify you for education credits paid with taxable income and may result in a better tax situation.

View solution in original post

Level 6

1099-MISC received for eligible scholarship

@JamesFan  see above as you are correct that the IRS will look for it to be reported... I updated my answer for you.
New Member

1099-MISC received for eligible scholarship

So you mean I still need to report 1099misc but negate it as other income? I also noticed just simply input it as scholarship in education section, the 8863 and other forms don't reflect the scholarship amount, but only shows deducted tuition cost. Not sure if IRS can get that.
Level 6

1099-MISC received for eligible scholarship

was the amount in box 3 or box 7?  If box 3 just report it in education section.  If box 7, report it as earned income as a 1099Misc. (when you enter your education expenses, your taxes will be reduced by the education section but if in box 7 do not report the scholarship in education area as you would then possibly double count the income).  It all depends what the monies were for if it is earned or unearned income. Earned is taxable such as if you taught a class as a TA to get monies and worked,  Unearned is if it can be considered only education sources, true scholarship monies for education that you did not work for.  Earned income may also have you eligible for earned income tax credits if you have dependents).
New Member

1099-MISC received for eligible scholarship

It is box 3, no tax retained. I submitted an application and  college selected me then gave me a check then 1099misc this year. So I can just ignore the turbo tax 1099misc item,  only put it under education area? Act as if college misreported the scholarship.
Level 6

1099-MISC received for eligible scholarship

since amount is in box 3, you report it with the 1098-T, only amounts in excess of tuition would be taxable income.  TT would handle that for you.  You can be conservative and report it and do negative reporting it as Education scholarship so the IRS doesn't pull the return and the net impact will be the same.
Level 6

1099-MISC received for eligible scholarship

I'm editing the answer as it is safest to report with negative.... Who needs return pulled. The payer should not have used the 1099Misc is the whole issue if it was pure scholarship monies for education and not earned. You should contact payer and send them IRS infor that I left in the answer, you may also want to contact IRS for the misreported amount.
New Member

1099-MISC received for eligible scholarship

Great thanks. But I had this question on another thread and got the answer that negate the number will draw IRS's attention. Could you look at it? <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4299369">https://ttlc.intuit.com/questions/4299369</a>
Level 6

1099-MISC received for eligible scholarship

You can choose to enter only in education section and draw IRS attention as no 1099Misc entry or choose to report it and negate it and provide the reason and report it in education section where it belongs.....  If it is truly scholarship money and does not exceed your education expenses, the money is not taxable.  So either they see the 1099 reported and reversed and it draws attention or they don't see it reported and it draws attention....
Highlighted
New Member

1099-MISC received for eligible scholarship

Since the 1099-MISC was for an eligible scholarship and since you have entered education expenses in your return in prior years, you should declare this in the Education section of TurboTax as a scholarship. Even if you have no education expenses in your 2015 return, you should still use this approach.  TurboTax will include this data in Line 7 of your Form 1040

New Member

1099-MISC received for eligible scholarship

Thank you for your quick response - this is very helpful! Do I need to request that the school send a revised 1099-MISC since it was a scholarship? I just am afraid that it will show with the IRS that I did not report the 1099-MISC. Or will reporting it in the scholarship section suffice? Thanks again!
New Member

1099-MISC received for eligible scholarship

Any follow up on this? I have same condition and want to make sure this way is safe. Currently I report 1099misc and negate it in "other income". I'll get rid of it if no problem.