Taxes, Stipend, Dependency and Kiddie Tax

[SmartParent]

New to this SMART Scholarship and am investigating the tax implications to the student.

Is the stipend treated as taxable portion of a scholarship or as income? If scholarship, is it then subject to the "kiddie tax" where the student is taxed at the parents higher tax rate?

If scholarship, I understand that it cannot be used by the student as support to avoid being claimed as a dependent and therefore subject to the "kiddie tax."

Does anyone have experience with this topic?

[Guest123]

New to this SMART Scholarship and am investigating the tax implications to the student.

Is the stipend treated as taxable portion of a scholarship or as income? If scholarship, is it then subject to the "kiddie tax" where the student is taxed at the parents higher tax rate?

If scholarship, I understand that it cannot be used by the student as support to avoid being claimed as a dependent and therefore subject to the "kiddie tax."

Does anyone have experience with this topic?

Typically, scholars have to file separately since parents won't usually be providing more than half of the support (the stipend and scholarship is usually greater than parental support)... But yes, the stipend is considered income for the scholar.

[Guest]

It's 1099MISC income. That means it's not a scholarship and it's not earned income. No self employment tax. No qualifying for earned income credit. Taxed at whatever rate the filer is taxed at. Just like winning a lotto.

[Guest]

Typically, scholars have to file separately since parents won't usually be providing more than half of the support (the stipend and scholarship is usually greater than parental support)... But yes, the stipend is considered income for the scholar.

Thanks for your reply, and I would like to agree, but according to IRS publication 501,

Scholarships.
A scholarship received by a
child who is a student isn't taken into account in
determining whether the child provided more
than half of his or her own support.

Clearly then, the scholarship doesn't count towards support. The question remains as to how to treat the stipend. If the stipend is considered the same as a scholarship then it is unlikely that the student is NOT a dependent since the only money that the student can use to count for support would be their savings, however, if the stipend is not treated as a scholarship then it may be possible to not be a dependent by counting the stipend towards support.

What makes things even more confusing is the taxable portion of scholarships is considered earned income for standard deduction but not for the determination of support.

It's 1099MISC income. That means it's not a scholarship and it's not earned income. No self employment tax. No qualifying for earned income credit. Taxed at whatever rate the filer is taxed at. Just like winning a lotto.

Thanks, but not sure this completely answers the question yet. Understand there is no self employment tax, however from IRS Instructions for Form 8615,

For Form 8615, “unearned income” includes all taxable
income other than earned income as defined later.
Unearned income includes taxable interest, ordinary
dividends, capital gains (including capital gain
distributions), rents, royalties, etc. It also includes taxable
social security benefits, pension and annuity income,
taxable scholarship and fellowship grants not reported on
Form W-2, unemployment compensation, alimony, and
income (other than earned income) received as the
beneficiary of a trust.

My hopefully incorrect reading seems to imply that the stipend is unearned income and would be subject to the "kiddie tax."

[SmartParent]

Above is my post, guess I wasn't properly logged in when posting.

[kbl2017]

SMART income - "You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE."

You are advised of the following:
ASEE must report all stipend, internship support, health insurance and book allowance payments
made to Recruitment Participants under the SMART Scholarship Program. At year end, ASEE
will provide participants and the Internal Revenue Service (IRS) with the informational Form
1099-MISC recording the amount paid to the participant during the tax year. ASEE does not
withhold taxes from participant payments. Under current laws and regulations, participants are
responsible for submitting quarterly estimates of income taxes to the IRS and paying the amounts
due. Participants may have a similar liability with respect to state and/or local taxes depending
upon the state and/or locality where the participant resides.

You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE. If you have further tax questions, please contact
the IRS, as ASEE is prohibited from giving tax advice.

Here's info on the kiddie tax stuff too from the irs https://www.irs.gov/taxtopics/tc553.htm ... tc553.html

Your child should probably not be field as a dependent and wouldn't be subject to "kiddie tax". As they will be receiving their own money for things like housing and food and will be able to support themselves. Our living stipend portion (28-38k a year depending on the degree) is not a scholarship. That is what will be taxed. The scholarship portion itself can be ignored in discussion of income it isn't reported and is paid directly to the school.

[kbl2017]

Additionally, I think that our stipend is considered taxable fellowship income. It won't require us to pay medicare or social security because it's not in relation to wadges and is not in return for working. Which they make very clear in all our paperwork.

[SmartParent]

SMART income - "You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE."

Here's info on the kiddie tax stuff too from the irs https://www.irs.gov/taxtopics/tc553.htm ... tc553.html

Your child should probably not be field as a dependent and wouldn't be subject to "kiddie tax". As they will be receiving their own money for things like housing and food and will be able to support themselves. Our living stipend portion (28-38k a year depending on the degree) is not a scholarship. That is what will be taxed. The scholarship portion itself can be ignored in discussion of income it isn't reported and is paid directly to the school.

My current thinking is that for this year she will be a dependent since she attended in the spring and received the scholarship and stipend starting this fall so she did not supply over half her support (given the rule that scholarships do not count towards support.) The stipend is taxable and will probably fall under the "kiddie tax" this year since she will be a dependent and the stipend appears to be unearned income.

However for the following year for which she will be supported by the scholarship and stipend for the whole year, she can probably be considered not a dependent and therefore not subject to the "kiddie tax." The nuance is whether the stipend is considered as part of a scholarship for the purposes of determining support. It seems odd, but it appears that IRS rules are such that if it is part of a scholarship related living stipend, she can't consider it her contribution to her support. So one might need to be careful to ensure that she supplies over 50% of her support. If she can't have credit for the stipend funds, that may be difficult but not impossible. However, that interpretation makes no sense to me but I can't find anything to support a more logical interpretation.

[TaxesTaxes]

SMART income - "You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE."

Here's info on the kiddie tax stuff too from the irs https://www.irs.gov/taxtopics/tc553.htm ... tc553.html

Your child should probably not be field as a dependent and wouldn't be subject to "kiddie tax". As they will be receiving their own money for things like housing and food and will be able to support themselves. Our living stipend portion (28-38k a year depending on the degree) is not a scholarship. That is what will be taxed. The scholarship portion itself can be ignored in discussion of income it isn't reported and is paid directly to the school.

My current thinking is that for this year she will be a dependent since she attended in the spring and received the scholarship and stipend starting this fall so she did not supply over half her support (given the rule that scholarships do not count towards support.) The stipend is taxable and will probably fall under the "kiddie tax" this year since she will be a dependent and the stipend appears to be unearned income.

However for the following year for which she will be supported by the scholarship and stipend for the whole year, she can probably be considered not a dependent and therefore not subject to the "kiddie tax." The nuance is whether the stipend is considered as part of a scholarship for the purposes of determining support. It seems odd, but it appears that IRS rules are such that if it is part of a scholarship related living stipend, she can't consider it her contribution to her support. So one might need to be careful to ensure that she supplies over 50% of her support. If she can't have credit for the stipend funds, that may be difficult but not impossible. However, that interpretation makes no sense to me but I can't find anything to support a more logical interpretation.

I think you're interpreting it correctly, but I would most definitely consult a tax professional before making any final decisions. This is my first year with the scholarship, and plan to file as an independent because my parent did not provide 50% of my income this year. I would also make sure you really are providing 50% of her total income for the full year before claiming her as a dependent -.. It might even be cheaper to just let her file as an independent. But again, I'd consult a tax professional about this. They're opinion on the matter will outweigh anything we post on this forum (unless a tax profession does post on the forum lol).

[SmartParent]

I think you're interpreting it correctly, but I would most definitely consult a tax professional before making any final decisions. This is my first year with the scholarship, and plan to file as an independent because my parent did not provide 50% of my income this year. I would also make sure you really are providing 50% of her total income for the full year before claiming her as a dependent -.. It might even be cheaper to just let her file as an independent. But again, I'd consult a tax professional about this. They're opinion on the matter will outweigh anything we post on this forum (unless a tax profession does post on the forum lol).

Thanks for the reply. Good advice. Agree it may be cheaper if she were an independent for both this year and next (although need to run the numbers carefully, especially for this year.)

Regarding a tax professional, that is a good idea and I am trying to get the necessary background information first. The situation has some unique nuances that may outside of the realm of many professionals' experience. However, professional advice is just that, advice; the final say would be an IRS determination or ultimately a tax court decision.

[kbl2017]

SMART income - "You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE."

Here's info on the kiddie tax stuff too from the irs https://www.irs.gov/taxtopics/tc553.htm ... tc553.html

Your child should probably not be field as a dependent and wouldn't be subject to "kiddie tax". As they will be receiving their own money for things like housing and food and will be able to support themselves. Our living stipend portion (28-38k a year depending on the degree) is not a scholarship. That is what will be taxed. The scholarship portion itself can be ignored in discussion of income it isn't reported and is paid directly to the school.

My current thinking is that for this year she will be a dependent since she attended in the spring and received the scholarship and stipend starting this fall so she did not supply over half her support (given the rule that scholarships do not count towards support.) The stipend is taxable and will probably fall under the "kiddie tax" this year since she will be a dependent and the stipend appears to be unearned income.

However for the following year for which she will be supported by the scholarship and stipend for the whole year, she can probably be considered not a dependent and therefore not subject to the "kiddie tax." The nuance is whether the stipend is considered as part of a scholarship for the purposes of determining support. It seems odd, but it appears that IRS rules are such that if it is part of a scholarship related living stipend, she can't consider it her contribution to her support. So one might need to be careful to ensure that she supplies over 50% of her support. If she can't have credit for the stipend funds, that may be difficult but not impossible. However, that interpretation makes no sense to me but I can't find anything to support a more logical interpretation.

You are most likely correct on your first assumption for being dependent this year. My parents are not going to be claiming me just because I'll end up paying more in taxes then they save by claiming me - but consult a professional to figure that out or run the numbers in turbo tax.

Credit the stipend funds as income. It is not part of the scholarship. The scholarship is only going towards school credits the stipend is only going towards living expenses and is taxable income. I've been paid via a living stipend before and they're considered income and are separate from the scholarship portion.

[Guest0]

Ned Flanders over here.^^

[scheffc]

Additionally, I think that our stipend is considered taxable fellowship income. It won't require us to pay medicare or social security because it's not in relation to wadges and is not in return for working. Which they make very clear in all our paperwork.

Is there anywhere specific you read this that you can point me to? Trying to figure out this tax mess.

Thanks!

[kbl2017]

Additionally, I think that our stipend is considered taxable fellowship income. It won't require us to pay medicare or social security because it's not in relation to wadges and is not in return for working. Which they make very clear in all our paperwork.

Is there anywhere specific you read this that you can point me to? Trying to figure out this tax mess.

Thanks!

I read about the taxable fellowship thing just from a google search. The only specific wording from SMART was the "You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE." which sounds similar to being a taxable fellowship. Those normally include a scholarship and living stipend.

[guest4321]

Went to the following page:
https://www.irs.gov/businesses/small-bu ... or-defined
and it says:
"If you are an independent contractor, you are self-employed."
So, SMART can't say
"You are considered an independent contractor, and not self-employed, and are not employed by
either the United States Government or ASEE."
That's why we are all confused--SMART doesn't appear to know what they are talking about.

[Guest0123]

The stipend is considered like a lottery winning essentially. The scholarship is not reported on the 1099 because it is paid directly to the school. Despite what SMART said, you are not considered an independent contractor, you are not self employed, and it is not considered earned income. If you were considered a contractor, they'd have to deduct the amount of time worked during your internship from your total commitment. In this way they can still maintain that it's an unpaid internship and the money you are receiving is simply for living expenses.