Typical caveat on all this: I'm not a tax pro and I'm not giving tax advice. This is from my experience wrestling with taxes as a scholar and doing my own browsing through the various IRS pubs.
What about kiddie tax? From what I can tell, the 1099-Misc Box 3 is counted as unearned income which will be subject to kiddie tax if appropriate. However, since this is a scholarship it should not be on a 1099. As the linked Q&A suggests, this should be reported as a scholarship (or not reported on any form) which would make it "earned income" and not subject to the kiddie tax. Still subject to regular income tax of course.
SMART's description is provided to be as helpful as it can be without getting into the territory of tax advice. This is one case where I don't think they're quite on the mark. 1099-MISC Box 3 is
OTHER income, not strictly unearned because that terminology is used in different tax contexts, and there are many types of other income. This one specifically is often referred to as "noncompensatory income" though I don't believe the IRS itself ever uses this language anywhere. It's not quite an "award" but it's income received not in relation to any particular services performed or goods delivered - in our case, it's a stipend and some allowances. This is where many graduate stipends will be filed. Some schools, like mine, consider graduate assistants to be employees and file a W-2 for them. Those are pretty much the only two ways an educational stipend will appear in taxes. So it is not subject to self-employment or the kiddie tax (probably... more below), it is in a category of its own.
ALL SMART funds fall under this category, including your initial site visit, the allowances, stipends, and ISPs because all of it is other income and none of it is paid in exchange for goods or services.
From 1099-MISC Box 3 instructions: "The amount shown may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages, Indian gaming profits, or other taxable income"
On the matter of kiddie taxes, if you are still being claimed as a dependent, you may want to talk to a financial advisor because the rules start getting a little complicated. If kiddie taxes do apply, you may want to explore filing as an independent. I have been an independent since I started riding through school on scholarships/fellowships so I don't really have experience filing taxes with that money AND being an independent.
On "earned income." With the passage of the recent Graduate Student Savings Act, scholarship/fellowship stipends are "earned income" for the purposes of IRA contribution eligibility. If you file as a dependent, they probably aren't and you may want to consult a tax professional about calculated the income/support cost threshold at which kiddie tax would apply.
$20k tuition and other qualified expenses
$25k stipend
$10k (total) for weekly internship allowance
$2.2k for health and misc allowance
Be careful, "qualified expenses" must be paid out of pocket. SMART pays your tuition and mandatory fees on your behalf so they are NOT a qualified educational expense. From IRS: "You can claim an education credit for qualified education expenses paid by cash, check, credit or debit card or paid with money from a loan."
Do not try to file SMART-paid amounts as qualified expenses. Note for AOTC: "For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school. For example, the cost of a required course book bought from an off-campus bookstore is a qualified education expense."
From Pub 970 and Tax Topic 421
How To Report
How you report any taxable scholarship or fellowship grant income depends on which return you file.
Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter "SCH" and the taxable amount on the dotted line next to line 1.
As to your last point, this is another place where I saw SMART's terminology conflicts with IRS language. Best I can tell, as far as the IRS is concerned, a "scholarship" is funds provided for making "qualified expenses." Any money from a scholarship not used for such expenses is supposed to be filed as income, though many people don't do this. So even though SMART is a "scholarship" as the word is used in common English, I don't believe SMART scholars should actually have any scholarship funds to report on taxes. Even though it comes from a program that calls itself a scholarship, all of our funds have been filed as 1099-MISC Other Income. It is important to take this definition because
that is what SMART has filed with the IRS. Regardless of what may, in fact, be the most correct answer, SMART has filed its paperwork and it would be a very bad idea to try and file otherwise.
To those still looking for a tax solution, I filed my paperwork as-is with Tax Slayer's free option and everything was calculated correctly: no self-employment tax and it allowed my IRA contribution. No matter what solution you wound up using, I strongly suggest making a little spreadsheet, looking at the IRS income tax tables, and calculating an estimate of your tax liability for yourself. If it's off by $10, that's fine. If it's off by $1000, something's wrong.
Typical caveat on all this: I'm not a tax pro and I'm not giving tax advice. This is from my experience wrestling with taxes as a scholar and doing my own browsing through the various IRS pubs.
[quote]What about kiddie tax? From what I can tell, the 1099-Misc Box 3 is counted as unearned income which will be subject to kiddie tax if appropriate. However, since this is a scholarship it should not be on a 1099. As the linked Q&A suggests, this should be reported as a scholarship (or not reported on any form) which would make it "earned income" and not subject to the kiddie tax. Still subject to regular income tax of course.[/quote]
SMART's description is provided to be as helpful as it can be without getting into the territory of tax advice. This is one case where I don't think they're quite on the mark. 1099-MISC Box 3 is [b]OTHER[/b] income, not strictly unearned because that terminology is used in different tax contexts, and there are many types of other income. This one specifically is often referred to as "noncompensatory income" though I don't believe the IRS itself ever uses this language anywhere. It's not quite an "award" but it's income received not in relation to any particular services performed or goods delivered - in our case, it's a stipend and some allowances. This is where many graduate stipends will be filed. Some schools, like mine, consider graduate assistants to be employees and file a W-2 for them. Those are pretty much the only two ways an educational stipend will appear in taxes. So it is not subject to self-employment or the kiddie tax (probably... more below), it is in a category of its own. [b]ALL[/b] SMART funds fall under this category, including your initial site visit, the allowances, stipends, and ISPs because all of it is other income and none of it is paid in exchange for goods or services.
From 1099-MISC Box 3 instructions: "The amount shown may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages, Indian gaming profits, or other taxable income"
On the matter of kiddie taxes, if you are still being claimed as a dependent, you may want to talk to a financial advisor because the rules start getting a little complicated. If kiddie taxes do apply, you may want to explore filing as an independent. I have been an independent since I started riding through school on scholarships/fellowships so I don't really have experience filing taxes with that money AND being an independent.
On "earned income." With the passage of the recent Graduate Student Savings Act, scholarship/fellowship stipends are "earned income" for the purposes of IRA contribution eligibility. If you file as a dependent, they probably aren't and you may want to consult a tax professional about calculated the income/support cost threshold at which kiddie tax would apply.
[quote]$20k tuition and other qualified expenses
$25k stipend
$10k (total) for weekly internship allowance
$2.2k for health and misc allowance[/quote]
Be careful, "qualified expenses" must be paid out of pocket. SMART pays your tuition and mandatory fees on your behalf so they are NOT a qualified educational expense. From IRS: "You can claim an education credit for qualified education expenses paid by cash, check, credit or debit card or paid with money from a loan."[b] Do not[/b] try to file SMART-paid amounts as qualified expenses. Note for AOTC: "For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school. For example, the cost of a required course book bought from an off-campus bookstore is a qualified education expense."
[quote]From Pub 970 and Tax Topic 421
How To Report
How you report any taxable scholarship or fellowship grant income depends on which return you file.
Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter "SCH" and the taxable amount on the dotted line next to line 1.[/quote]
As to your last point, this is another place where I saw SMART's terminology conflicts with IRS language. Best I can tell, as far as the IRS is concerned, a "scholarship" is funds provided for making "qualified expenses." Any money from a scholarship not used for such expenses is supposed to be filed as income, though many people don't do this. So even though SMART is a "scholarship" as the word is used in common English, I don't believe SMART scholars should actually have any scholarship funds to report on taxes. Even though it comes from a program that calls itself a scholarship, all of our funds have been filed as 1099-MISC Other Income. It is important to take this definition because [b]that is what SMART has filed with the IRS[/b]. Regardless of what may, in fact, be the most correct answer, SMART has filed its paperwork and it would be a very bad idea to try and file otherwise.
To those still looking for a tax solution, I filed my paperwork as-is with Tax Slayer's free option and everything was calculated correctly: no self-employment tax and it allowed my IRA contribution. No matter what solution you wound up using, I strongly suggest making a little spreadsheet, looking at the IRS income tax tables, and calculating an estimate of your tax liability for yourself. If it's off by $10, that's fine. If it's off by $1000, something's wrong.