Questions about reporting an internship with a 1099-MISC

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focusedonwhatmatters
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Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

I'm helping my teen, a full-time college student, who had a summer internship with NASA. The $6000 "stipend" was reported on a 1099-MISC. He was interning in a different state (California). He had to pay his own transportation, housing, etc. No state or federal taxes were withheld. He had no other earned income.

1. TurboTax is prompting me with a question about was the intent of the money on the 1099-MISC to earn money, which would label it as income. I am not sure how to answer that.
a. If I say yes, there was an intent to earn money, TurboTax says he can deduct expenses. It then asks for the name of his company, address of his company, etc. which stumped me. Would this simply be his name and home address?
b. Can he deduct his airfare, transportation expenses, and rent?
2. Or should the intent to earn money question be no? with no expenses deducted?
3. Lastly, can he contribute to a Roth IRA?

Thanks in advance!
livesoft
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Re: Questions about reporting an internship with a 1099-MISC

Post by livesoft »

This is just Schedule C income and he had a sole proprietorship That means he will have to pay FICA/medicare taxes, too. He had a small consulting business, so kudos to him. Make him read IRS Publications about small businesses such as Publication 334.

I did some computer programming for a NASA subcontractor back in the day. My first consulting gig. I made about $600 for a few hours of work, but that was the start of my sole proprietorship Schedule C that has been around for 35 years.

https://www.irs.gov/publications

One cannot deduct housing just because they have a job.

If this guy is working for NASA, then he should be doing your taxes for you. Make him learn and do it.

And yes, he can contribute to his Roth IRA up to his net compensation for 2017.
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Leesbro63
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Re: Questions about reporting an internship with a 1099-MISC

Post by Leesbro63 »

livesoft wrote: Tue Feb 06, 2018 5:47 pm This is just Schedule C income and he had a sole proprietorship That means he will have to pay FICA/medicare taxes, too. He had a small consulting business, so kudos to him. Make him read IRS Publications about small businesses such as Publication 334.

I did some computer programming for a NASA subcontractor back in the day. My first consulting gig. I made about $600 for a few hours of work, but that was the start of my sole proprietorship Schedule C that has been around for 35 years.

https://www.irs.gov/publications

One cannot deduct housing just because they have a job.

If this guy is working for NASA, then he should be doing your taxes for you. Make him learn and do it.

And yes, he can contribute to his Roth IRA up to his net compensation for 2017.
And if there is enough family money to do it, it's a great opportunity to pop $5500 into a Roth IRA that will grow tax free indefinitely.
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focusedonwhatmatters
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Thanks for the responses. If I am interpreting this correctly, he can deduct his transportation costs which would bring his net down to $4471. It's showing he owes $632 in taxes...does that sound right? Is that FICA and Medicare?
livesoft
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Re: Questions about reporting an internship with a 1099-MISC

Post by livesoft »

I didn't answer about airfare, etc. That's a moving expense. So he needs to read up about moving expenses. I think there an IRS publication for that, too.
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focusedonwhatmatters
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Clarification: I interpreted the transportation expense from the IRS publication and TurboTax. Throughout the 10 weeks he flew back and forth a few times, he never moved there. It was my interpretation that those would be transportation expenses.
snowman
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

I may be missing something, but if this is your kid, currently in college, that means he is your dependent, right? Which means he will take standard deduction, and his taxable income is going to be zero (since you said he has no other income).

So why bother with deductions? What am I missing?
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Yes, my son is 18, in college full time, and I am claiming him as a dependent. After the standard deduction, his taxable income (including some interest and dividends) is $647. But when I enter the internship 1099-MISC as income, it generates a Schedule C and therefore there is "other tax" of more than $600. I am assuming this is the FICA and Medicare that livesoft spoke of. That's why I was looking for deductions, to lower the taxable amount on the Schedule C.
snowman
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

Got it. We are in similar situation, my son is 2 years ahead of yours. I cannot help you with your specific problem (seems like FICA to me), but I do have 2 suggestions that might help you.

One is to do a search or post a question on collegeconfidential.com. Lots and lots of people dealing with similar issues.

Two - we live in state A and son goes to school in state B - so he gets W-2 from another state but his permanent residency is with us. So he needs to file 2 state returns, which is a PITA. Instead of buying another state from TT, last year I created online account at HRB, and quickly duplicated his tax return for free. I then printed his state B return and mailed it.

The reason I mention it is because I found interview for scholarships and other income of a dependent student much easier to navigate in HRB compared to TT, so you might want to give it a try, it won't cost you anything. See what you get compared to TT.
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focusedonwhatmatters
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Hmm. Does he need to file a CA return as well? The NASA center he interned at in was in CA, but he was paid by USRA in MD. We live in neither.
Katietsu
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Re: Questions about reporting an internship with a 1099-MISC

Post by Katietsu »

Is the income reported in box 3 or box 7? Generally, stipends for internships are not provided for the purpose of compensation of specific job duties and are treated differently. There is likely no self employment tax due.
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focusedonwhatmatters
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Katietsu wrote: Tue Feb 06, 2018 7:55 pm Is the income reported in box 3 or box 7? Generally, stipends for internships are not provided for the purpose of compensation of specific job duties and are treated differently. There is likely no self employment tax due.
It's box 3, other income.

Does that mean it's not "intent to earn money"?
Katietsu
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Re: Questions about reporting an internship with a 1099-MISC

Post by Katietsu »

It belongs on line 21 of the 1040. It does not belong on a Sch C. There is no self employment taxes. And if this is his only income, there is also no federal taxes since it is less than $6350. I do not know how to answer the Turbo Tax questions to get this right. Your suggestion if answering No to that question could be right. Make sure you indicate that he is a dependent on another return.

I do not know how CA or your state would view this. Many states tax based on federal AGI. The fact that it was paid from MD is not relevant. I would be inclined to file a resident return for your state and not file for CA since it is not earned income. But I am really just guessing.
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Katietsu wrote: Tue Feb 06, 2018 8:06 pm It belongs on line 21 of the 1040. It does not belong on a Sch C. There is no self employment taxes. And if this is his only income, there is also no federal taxes since it is less than $6350. I do not know how to answer the Turbo Tax questions to get this right. Your suggestion if answering No to that question could be right. Make sure you indicate that he is a dependent on another return.

I do not know how CA or your state would view this. Many states tax based on federal AGI. The fact that it was paid from MD is not relevant. I would be inclined to file a resident return for your state and not file for CA since it is not earned income. But I am really just guessing.
Thank you. When I uncheck the intent question, it does put the 1099-MISC amount on line 21 of the 1040. Can he contribute to a Roth IRA with it reported this way?
CFM300
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Re: Questions about reporting an internship with a 1099-MISC

Post by CFM300 »

This link from TurboTax might be helpful:

https://ttlc.intuit.com/questions/37849 ... o-i-put-it
Last edited by CFM300 on Tue Feb 06, 2018 8:26 pm, edited 1 time in total.
Topic Author
focusedonwhatmatters
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Katietsu wrote: Tue Feb 06, 2018 8:06 pm It belongs on line 21 of the 1040. It does not belong on a Sch C. There is no self employment taxes. And if this is his only income, there is also no federal taxes since it is less than $6350. I do not know how to answer the Turbo Tax questions to get this right. Your suggestion if answering No to that question could be right. Make sure you indicate that he is a dependent on another return.

I do not know how CA or your state would view this. Many states tax based on federal AGI. The fact that it was paid from MD is not relevant. I would be inclined to file a resident return for your state and not file for CA since it is not earned income. But I am really just guessing.
Also, it is still calculating ~$600 in Federal tax due since he is being claimed as a dependent on my return.
snowman
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

focusedonwhatmatters wrote: Tue Feb 06, 2018 7:54 pm Hmm. Does he need to file a CA return as well? The NASA center he interned at in was in CA, but he was paid by USRA in MD. We live in neither.
I don't think you need to do that if no income tax was withheld (but again, I am no CPA). The issue our son has every year is that state B withholds state taxes, which means he needs to file state B non-resident tax return to receive a refund. Otherwise, he would be double taxed at the state level.

On top of it, he also gets tons of scholarships (exceeding his cost of QEE), which go on line 7. The problem is that scholarship is not earned income (even though it's on line 7 as wages), so it cannot be used to contribute to Roth IRA. I mention it because the link provided by another poster above offers 2 possible answers - and at least one of them (the second one) will not allow your son to use this money for Roth IRA contribution since scholarship money doesn't qualify.
snowman
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

focusedonwhatmatters wrote: Tue Feb 06, 2018 8:19 pm
Katietsu wrote: Tue Feb 06, 2018 8:06 pm It belongs on line 21 of the 1040. It does not belong on a Sch C. There is no self employment taxes. And if this is his only income, there is also no federal taxes since it is less than $6350. I do not know how to answer the Turbo Tax questions to get this right. Your suggestion if answering No to that question could be right. Make sure you indicate that he is a dependent on another return.

I do not know how CA or your state would view this. Many states tax based on federal AGI. The fact that it was paid from MD is not relevant. I would be inclined to file a resident return for your state and not file for CA since it is not earned income. But I am really just guessing.
Also, it is still calculating ~$600 in Federal tax due since he is being claimed as a dependent on my return.
When you say federal tax, do you mean federal income tax? The only way $600 FIC would be due if his taxable income was $6,000, which means his total income (likely his AGI) would be around $12,350.
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

I am so confused. The TurboTax link above from CFM300 describes this situation almost exactly...but who is this TurboTaxTomK, the TurboTax Tax Support Agent who provided the answer, and is his answer valid? Seems so strange that NASA would issue a 1099-MISC incorrectly.

snowman, yes I am talking about the federal income tax. The total income and AGI are $6997 (this was $6000 stipend plus some dividends and interest), standard deduction $1050, taxable income $5947, total tax $593. What am I doing wrong?
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

His standard deduction is $6,350, not 1,050, so his taxable income is 647, his FIC likely being 65.
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Is his standard deduction $6350 even if I claim him as a dependent? Turbo Tax is putting it in as $1050.
livesoft
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Re: Questions about reporting an internship with a 1099-MISC

Post by livesoft »

I don't see this as a stipend since it is basically unrelated to any academic endeavor. NASA does not award degrees nor teach classes. What if this was a summer internship with an engineering firm or with Google? There are benefits to declaring this as income SS income/credits, Roth eligibility. Lots of places don't want temporary employees getting W-2s, so if they can just give a 1099-MISC, they avoid a lot of bookkeeping internal to the employer.

I would say dive into Tax Publications and forget about TurboTax for awhile. Look at the tax forms and not simply the TurboTax output.

I'd still do a Schedule C-EZ and wouldn't worry about deducting any expenses. I'm really suspicious of all the back-and-forth travel mentioned.

Furthermore you son probably has friends who did internships. He should ask among his peers how they did their taxes. After all, none of them should have their parents doing their taxes.
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Topic Author
focusedonwhatmatters
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

livesoft wrote: Tue Feb 06, 2018 9:42 pm I don't see this as a stipend since it is basically unrelated to any academic endeavor. NASA does not award degrees nor teach classes. What if this was a summer internship with an engineering firm or with Google? There are benefits to declaring this as income SS income/credits, Roth eligibility. Lots of places don't want temporary employees getting W-2s, so if they can just give a 1099-MISC, they avoid a lot of bookkeeping internal to the employer.

I would say dive into Tax Publications and forget about TurboTax for awhile. Look at the tax forms and not simply the TurboTax output.

I'd still do a Schedule C-EZ and wouldn't worry about deducting any expenses. I'm really suspicious of all the back-and-forth travel mentioned.

Furthermore you son probably has friends who did internships. He should ask among his peers how they did their taxes. After all, none of them should have their parents doing their taxes.
I call it a stipend because NASA called it a stipend. My son was named a NASA Scholar, which provided him with scholarship money paid directly to his college and a stipend for a mandatory summer internship.
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

focusedonwhatmatters wrote: Tue Feb 06, 2018 9:37 pm Is his standard deduction $6350 even if I claim him as a dependent? Turbo Tax is putting it in as $1050.
You must be making a mistake somewhere. Try HRB online to see where you are making mistake. Or try new TT return - sometimes TT keeps the numbers even after you thought you deleted them.

As a dependent, he cannot claim personal exemption of 4,050. He is eligible to take standard deduction of 6,350. So as a dependent, his non-taxable income is reduced from 10,400 to 6,350. This is all for 2017. Starting in 2018, it won't make any difference - personal exemption goes away, and standard deductions goes to 12,000.
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Re: Questions about reporting an internship with a 1099-MISC

Post by golfCaddy »

Edit: Read the acceptance contract. If it's a stipend, there would be no FICA taxes and no earned income. However, a stipend could still be reportable as a taxable scholarship.
Last edited by golfCaddy on Tue Feb 06, 2018 10:14 pm, edited 2 times in total.
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

snowman, I found this: The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of:
$1,050, or
The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,350).

If the stipend is in box 3 of the 1099-MISC and not earned income, he doesn't have any earned income. Maybe that would change if I do the maneuver described by TurboTaxTomK?
Katietsu
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Re: Questions about reporting an internship with a 1099-MISC

Post by Katietsu »

snowman wrote: Tue Feb 06, 2018 10:00 pm
focusedonwhatmatters wrote: Tue Feb 06, 2018 9:37 pm Is his standard deduction $6350 even if I claim him as a dependent? Turbo Tax is putting it in as $1050.
You must be making a mistake somewhere. Try HRB online to see where you are making mistake. Or try new TT return - sometimes TT keeps the numbers even after you thought you deleted them.

As a dependent, he cannot claim personal exemption of 4,050. He is eligible to take standard deduction of 6,350. So as a dependent, his non-taxable income is reduced from 10,400 to 6,350. This is all for 2017. Starting in 2018, it won't make any difference - personal exemption goes away, and standard deductions goes to 12,000.
Snowman just made the same mistake that I made earlier. You only get the $6350 as a dependent if you have earned income. By reporting the stipend properly on line 21, it is not earned income. Hence, the the software is correctly using the $1050 deduction instead. And no earned income for Roth. Sorry.
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Re: Questions about reporting an internship with a 1099-MISC

Post by Katietsu »

livesoft wrote: Tue Feb 06, 2018 9:42 pm I don't see this as a stipend since it is basically unrelated to any academic endeavor. NASA does not award degrees nor teach classes. What if this was a summer internship with an engineering firm or with Google? There are benefits to declaring this as income SS income/credits, Roth eligibility. Lots of places don't want temporary employees getting W-2s, so if they can just give a 1099-MISC, they avoid a lot of bookkeeping internal to the employer.

I would say dive into Tax Publications and forget about TurboTax for awhile. Look at the tax forms and not simply the TurboTax output.

I'd still do a Schedule C-EZ and wouldn't worry about deducting any expenses. I'm really suspicious of all the back-and-forth travel mentioned.

Furthermore you son probably has friends who did internships. He should ask among his peers how they did their taxes. After all, none of them should have their parents doing their taxes.
No, it is a stipend. It is not the same as if he worked for a engineering firm. In that case, if they were trying to avoid a W-2, they would report on the 1099-MISC, box 7. Then a Sch C would follow.

The difference is that the documentation for these NASA stipends specifically say, in not so many words, that they are giving you the money with no obligation for you to do anything in return. Hence, if anything, you should think of it as a prize.
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Re: Questions about reporting an internship with a 1099-MISC

Post by Katietsu »

focusedonwhatmatters wrote: Tue Feb 06, 2018 10:07 pm snowman, I found this: The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of:
$1,050, or
The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,350).

If the stipend is in box 3 of the 1099-MISC and not earned income, he doesn't have any earned income. Maybe that would change if I do the maneuver described by TurboTaxTomK?
TurboTaxTomK’s answer is a bit of a mess. I think he has cut and pasted the directions for a few situations into his answer. In one of the parts of his answer, the assumption is that the stipend was really scholarship and that it was used for qualified expenses, eg tuition and books. In another part, he has the income being taxable as it would if used for anything else, ie plane trips and apartments. But none of his answers result in box 3 “other income” becoming earned income.
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Re: Questions about reporting an internship with a 1099-MISC

Post by livesoft »

OK, I will walk back my advice for Schedule C-EZ. But a question: Who is the Payer on this 1099-MISC?
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Thanks everyone for the guidance. I'm just trying to get this right. It sounds like the $1050 standard deduction is correct, and that there won't be a Roth contribution this year.

livesoft, the payer is USRA:
Universities Space Research Association
Founded in 1969, under the auspices of the National Academy of Sciences at the request of the U.S. Government, the Universities Space Research Association (USRA) is a nonprofit corporation chartered to advance space-related science, technology and engineering. USRA operates scientific institutes and facilities, and conducts other major research and educational programs, under Federal funding. USRA engages the university community and employs in-house scientific leadership, innovative research and development, and project management expertise.
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

Katietsu wrote: Tue Feb 06, 2018 10:08 pm
snowman wrote: Tue Feb 06, 2018 10:00 pm
focusedonwhatmatters wrote: Tue Feb 06, 2018 9:37 pm Is his standard deduction $6350 even if I claim him as a dependent? Turbo Tax is putting it in as $1050.
You must be making a mistake somewhere. Try HRB online to see where you are making mistake. Or try new TT return - sometimes TT keeps the numbers even after you thought you deleted them.

As a dependent, he cannot claim personal exemption of 4,050. He is eligible to take standard deduction of 6,350. So as a dependent, his non-taxable income is reduced from 10,400 to 6,350. This is all for 2017. Starting in 2018, it won't make any difference - personal exemption goes away, and standard deductions goes to 12,000.
Snowman just made the same mistake that I made earlier. You only get the $6350 as a dependent if you have earned income. By reporting the stipend properly on line 21, it is not earned income. Hence, the the software is correctly using the $1050 deduction instead. And no earned income for Roth. Sorry.
Very interesting, and you made me do some additional research, since both TT last year and HRB this year apply 6,350 standard deduction to my son's tax return who is a dependent college student with about 5K of earned income and about 10K of taxable scholarships. I assumed - incorrectly - that the same principle applies to OP. This explains it:

https://ttlc.intuit.com/questions/34917 ... t-s-return

So in my son's case, taxable scholarship IS earned income for the size of deduction test, but it is NOT when it comes to contributing to Roth IRA. So he does get standard 6,300 deduction, but is limited in his Roth contributions by real earned income (from W-2). In case of OP, since it's not taxable scholarship, the 1,050 deduction applies instead.
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

These are all new tax situations for me. My son also got some scholarships. How do you know if they are taxable?
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Re: Questions about reporting an internship with a 1099-MISC

Post by Geologist »

For livesoft's benefit, a raft of government agencies support academic endeavors including NASA. Whether they grant degrees or teach classes is irrelevant. The comparison to private engineering firms or Google is also irrelevant because they are government agencies. Many issue stipends to students under particular funding programs.

I'll leave the exact tax treatment to others because that seems to have been handled.
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Re: Questions about reporting an internship with a 1099-MISC

Post by snowman »

focusedonwhatmatters wrote: Tue Feb 06, 2018 11:55 pm These are all new tax situations for me. My son also got some scholarships. How do you know if they are taxable?
The software will calculate it for you based on 1098-T your son gets from his school. However, before blindly putting the numbers into TT, verify that they are correct. Taxable scholarships are those that exceed qualified educational expenses - tuition, required fees, and books.
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Re: Questions about reporting an internship with a 1099-MISC

Post by focusedonwhatmatters »

Thank you very much! His scholarships don't exceed the qualified educational expenses, so it looks like they aren't taxable.
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Re: Questions about reporting an internship with a 1099-MISC

Post by Rainier »

If he ends up paying tax on this you are doing it wrong.

No way this $6,000 exceeded the expenses he incurred.

This is a not a W-2 job.
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