University Student Reseach Income reported on 1099-NEC

Your daughter can still meet the criteria for a Qualifying Child for dependent purposes if you can answer "yes" to all of the following questions:

• Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, adopted child, or an offspring of any of them.
• Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There's no age limit if your child is permanently and totally disabled.
• Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
• Do you financially support them? Your child may have a job, but they cannot provide more than half of their own support.

Please see this TurboTax tips article for more details on this topic.

Yes, your daughter needs to file her own tax return. Even though her income is less than the regular filing requirement, she received a Form 1099-NEC and was therefore treated as self-employed. She can report the income and any allowable expenses on Schedule C and would then be liable for self-employment tax on any net profit of $400 or more. The self-employment tax would add to her Social Security account. See this article and this IRS webpage for more information on this topic. 

Q. Do I report this income (dependent daughter's 1099-NEC) anywhere on my tax form?

A. No.  There are  no circumstances where it goes on your return. 

Q. Can I still claim her as a dependent?

A.  Yes.  A full time student, under 24, is still her parent's qualifying child dependent, regardless of income. 

Q. If she has to file her own return, am I still able to claim her as a dependent?

A.  Yes. She checks the box on her 1040 that says she can be claimed as a dependent by another person. 

Q. Does my daughter need to file her own tax return?

A. Yes. You may have heard that there is a $12,950 filing requirement.  That's generally just for wages. For other income, the filing threshold is much lower*.

Q. Is this money considered self-employment income, or earned income, or unearned income?

A.  The answer is quite fuzzy. Ideally, this should have been reported as wages (earned income), on a W-2. Reporting it as wages, without a W-2, is messy. The IRS usually considers income on a 1099-NEC  to be self employment  income and as such subject to self employment (social security and medicare)  tax.  But there is a provision for reporting it as sporadic (other) income. But that is unearned income  and subject to the "kiddie tax" (taxed at the parent's marginal tax rate).  She should probably report it as self employment. 

*You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return. If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2022 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,950 (2022).
2.          Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1150 (2022)
3.          Unearned income over $400 (2022) and gross income of more than $1150 (2022)
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2300 ($12,950 if under age 18)
5.          Other self employment income over $432, including money on a form 1099-NEC

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.