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Re: 1099-NEC for a stipend payment/services- SE Income?

MarinaEA
Level 4

A student received a 1099 NEC with box 1 for 7k. She said that was a stipend payment for 3 months out of town fellowship that covered food, housing, and she also performed some services. The stipend is not from Educational institution directly, but from the Zoo. 

How do we record this? Is that subject to SE? A schedule C? If so, can we deduct housing, 50% food, etc since it was out of town? Or does this go under "other income" and not Schedule C thus not subject to SE? 

Cant find proper information for her specific situation. She is a full time student at the University.

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BobKamman
Level 15

I agree the payment for services should be on a W-2, and they should have a summer accounting intern who checks vouchers for travel expenses so they come under an accountable plan and don't show up anywhere.  But I don't argue with zoos.  They have alligators and poisonous snakes and animals that spread coronavirus.  And part of a college education is learning that we have an irrational tax system.

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18 Comments 18
dkh
Level 15

I had one of these once long ago, so long ago those files have been shredded. I do remember I called the IRS for guidance - back when you could actually talk to someone.  If my memory is correct, I reported 1099 as Other Income then also entered a negative for same $ amount for expenses. I don't remember what I used a description for the expenses. 

My client was full time student that went to Costa Rica to study monkeys or something like that.

MarinaEA
Level 4

1099 as "other income"...?! But 1099NEC was issued with box 1 which is non employee compensation. And offsetting it with the same amount for expenses would eliminate FIT but I know stipend payments are at least subject to the income tax. 

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dkh
Level 15

a 1099-NEC with box 1 $$ can reported as Other Income   

for my situation many years ago, based on my research and IRS discussion, the stipend was not taxable    

BobKamman
Level 15

A paycheck by any other name is still a paycheck, even if you call it a stipend or an honorarium.  She was an intern, same as thousands of other students in summer jobs.  Schedule C, and deduct the travel expenses if she was "away from home" and otherwise qualifies.  

"The stipend is not from Educational institution directly"  Nor indirectly, is my guess.  Schools don't make grants, they live off grants.  It wasn't from the Humane Society directly either, I bet.  But the source of the funds is irrelevant.  

qbteachmt
Level 15

You also asked this issue, here:

https://proconnect.intuit.com/community/lacerte-tax-discussions/discussion/where-do-i-input-an-inter...

In that topic, you saw the various questions that were asked to draw out more about the specifics of the other person's issue. Here is what I replied to you, in the other topic:

You can search the web, such as:

https://www.irs.gov/taxtopics/tc421

A scholarship is given to offset qualified education expenses. That is why it is not taxable. It does not include an offset of living expenses.

"Stipend" is often the word used because the provider either doesn't have to, or doesn't know they should have, put this person on Payroll as an employee. That would depend on State Labor regulations and the program that student was involved in.

Here is a nice explanation: "A scholarship/fellowship used for expenses other than qualified expenses is taxable income. Taxable scholarships are generally referred to as stipends and are payments for which no services are rendered or required. Examples of stipends are payments that can be used for living and incidental expenses such as room and board, travel, non-required books and personal computers, etc."

I found that here: https://taxdepartment.gwu.edu/taxation-scholarships-fellowships-stipends-0

If services are provided, that is regular taxable income

Housing and Food costs are not expense unless they fall under the business provisions. For instance, what do you mean by "50% food?" What do you mean by housing? What does "out of town" mean? Have you compared the taxpayer's scenario to the IRS business travel rules specific to 2021?

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MarinaEA
Level 4

Please read again my situation. Not in her case. Stipends payments are taxable except for the part used for tuition, fees, books, supplies and equipment required for enrollment and in the pursuit of a degree. In her case, it was to cover housing and food plus for services performed as I stated in my explanation, and she was issued 1099NEC box 1 which is only issued for non employee compensation. She was NOT issued a 1099MISC which should have been or a W-2 which she should have been, I believe. 1099NEC box 1 triggers a Schedule C especially in her case since it did NOT come from any educational institution and was not given to cover qualified tax exempt education expenses.

What I mean by 50% food? That's exactly what I mean. I am aware of rules when meals, hotels, etc can be deducted. If in her case, we have to file a Schedule C, and she was out of town 500 miles away for this assignment, then she qualifies to deduct 50 % food, hotel "housing", and all other business expenses. Just like a construction workers goes out of town to perform the job.

I have discussed this with a few very experienced tax professionals. We all are agreeing that she should have been issued a W-2 or 1099 MISC, but she was not. We all are agreeing that filing a Schedule C would have to be due to 1099NEC box 1, and due to that payment was not issued for qualified tax exempt education expenses. We do not feel good about it though as we still do not think she should be filing a Schedule C, however in this case, seems it would have to be done this way. 

MarinaEA
Level 4

You are correct. The stipend was not from the educational institution at all, but it was from the Zoological society of SD.

And I agree with you. I have discussed this with a few very experienced tax professionals as well. We all are agreeing that she should have been issued a W-2 or maybe at least 1099 MISC, but she was not. We all are agreeing that filing a Schedule C would have to be due to 1099NEC box 1 ( non employee compensation) with deducting business expenses, and due to that payment was not issued for qualified tax exempt education expenses but for services and to cover housing, travel and food. We do not feel good about it though as we still do not think she should be filing a Schedule C, and we think she should have been issued a W-2, however in this case, seems it would have to be done with the Schedule C. We aren't going to be contacting the Zoo to see if the mistake was made with them issuing 1099NEC box 1, etc. 

MarinaEA
Level 4

1099NEC started in 2020, and supposedly those are issued only for non employee compensation and that is what is say on that form. That's why that form was created. 1099MISC is issued for all other income. 

Stipend payments are taxable except payments issued for qualified education expenses- books, tuition, which was not in her case. Ultimately, we think that she should have been issued a W-2 or 1099MISC at least not 1099NEC box 1. 

qbteachmt
Level 15

"We all are agreeing that she should have been issued a W-2 or maybe at least 1099 MISC,"

"Ultimately, we think that she should have been issued a W-2 or 1099MISC at least not 1099NEC box 1."

Nope. The Box 7 of the 1099-Misc is now the (resurrected) 1099-NEC. You keep telling us services were provided. That means -NEC or W-2 payroll, depending on the State, the program, and the employers' understanding of their requirements.

They are treating her as an Independent Contractor. Example: she is a Vet in residence at a school program, and she worked at the Zoo, independently from Zoo control.

"but for services and to cover housing, travel and food."

Because she provided Services, and for her to spend however she wanted and needed.

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BobKamman
Level 15

I agree the payment for services should be on a W-2, and they should have a summer accounting intern who checks vouchers for travel expenses so they come under an accountable plan and don't show up anywhere.  But I don't argue with zoos.  They have alligators and poisonous snakes and animals that spread coronavirus.  And part of a college education is learning that we have an irrational tax system.

MarinaEA
Level 4

"Nope. The Box 7 of the 1099-Misc is now the (resurrected) 1099-NEC"

Seems, you aren't quite understanding what we are talking about again. 🙂 As of 2020 - 1099-MISC is no longer used to report nonemployee compensation in box 7. Nonemployee compensation is reported using 1099-NEC box 1 ONLY. But the 1099-MISC is still around and used to report miscellaneous income such as rent, payments to an attorney, AND stipend payments as well in Box 3 of 1099 -MISC, etc. There is no Box 7 for contractors in 1099- MISC any longer, so obviously that is not what are discussing here.

Again, I am agreeing with other tax professionals I talked to and ones in this thread as well that she should have been issued a W-2. ( She is not in business or independent). Or 1099 - MISC if it was NOT considered for services according to the Zoo. (There is Box 3 "other income" in 1099-MISC, so obviously that is that we are talking about). We do not know if the Zoo made a mistake by treating her stipend payments as payments to an independent contractor and issuing 1099-NEC ( we think that they did) instead of 1099-MISC box 3. It is also our assumption that she "provided services", she does not know, she said that she was doing research, and the stipend was to cover food and housing. We are assuming that "doing research" was providing services. I've seen many vendors made mistakes by issuing 1099-NEC but it should be 1099-MISC box 3 due to the 2020 changes that not everyone understands yet. 

We are filing a Schedule C and deducting expense even though she is not in business and should not be filing a Schedule C. But we are going that route due to the 1099-NEC issued ( which means the IRS system most likely will be looking for a Schedule C) instead of trying to resolve this with the Zoo. 

Have a good night!

MarinaEA
Level 4

Haha! true! 

Yes, we are filing a Schedule C and deducting expense even though she is not in business and should not be filing a Schedule C. But we are going that route due to the 1099-NEC issued ( which means the IRS system most likely will be looking for a Schedule C) instead of trying to resolve this with the Zoo. We still believe that was an error to issue 1099-NEC. She is not in business and not independent at all, was just a 3 months thing. W-2 or 1099-MISC box 3 for her stipend payment- that's what we think would be appropriate in her case. This does not smell like 1099-NEC at all in her case. Her University issued her a W-2 for whatever she did. That's how this should have been treated as well or at least 1099-MISC box 3 "other income" for that stipend amount. I have seen so many vendors issuing 1099-NEC when they should have issued 1099- MISC box 3 due to 2020 changes not everyone seems understands yet. 

qbteachmt
Level 15

"But the 1099-MISC is still around and used to report miscellaneous income such as rent, payments to an attorney, AND stipend payments as well in Box 3 of 1099 -MISC, etc"

You keep telling us services were provided. That's the only Meaningful part of this. That eliminates any use of 1099-Misc entirely.

That's where you keep going wrong.

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BobKamman
Level 15

You could put it on a Form 4852, which will probably result in more tax than on a Schedule C.  Or help her file an SS-8, which might stir up enough trouble that she'll be blacklisted for life.  You know how zoos can be.  What you haven't told us is why you think she has a tax home.  Is her school in the same town as her family's home?  Did she have duplicate living expenses while on this assignment?  Think of the turtles at the zoo.  They can't be away from home because they carry theirs around with them.  

Grateful2002
Level 3

"What you haven't told us is why you think she has a tax home.  Is her school in the same town as her family's home?  Did she have duplicate living expenses while on this assignment? "

I know this is the old post, but dealing with the similar situation. OP did say: "If in her case, we have to file a Schedule C, and she was out of town 500 miles away for this assignment, then she qualifies to deduct 50 % food, hotel "housing", and all other business expenses. Just like a construction workers goes out of town to perform the job."

qbteachmt
Level 15

"I know this is the old post, but dealing with the similar situation."

Here's a recent topic along the same lines. See if this helps:

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/exemption-from-social-s...

 

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Grateful2002
Level 3

That post is about as a 1099-MISC. I am dealing with the 1099-NEC. Ill go with how what OP suggested. A schedule C, subject to SE tax because the 1099-NEC was issued not 1099-MISC. Whether that was incorrect or correct, that's not something we want to deal with figuring out right now.

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qbteachmt
Level 15

"That post is about as a 1099-MISC. I am dealing with the 1099-NEC."

That post includes the explanation and has exactly what you describe:

"Schedule 1, Line 8: Line 8r
Scholarship and fellowship grants not
reported on Form W-2. Enter the amount of scholarship and fellowship grants not reported on Form W-2. How-ever, if you were a degree candidate, include on line 8r only the amounts you used for expenses other than tuition and course-related expenses. For example, amounts used for room, board, and travel must be reported on line 8r."

And if it is for services (1099-NEC), then it requires a Sched C. In that linked article, I included the link for the IRS Pub, that applies to your situation as well:

Scholarship and Fellowship grants:

https://www.irs.gov/pub/irs-pdf/p970.pdf

https://www.irs.gov/pub/irs-pdf/p17.pdf

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