AOPA Scholarship on 1099-MISC

Forum|Forum|5 years ago
February 13, 2021
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My son (High School Student) was awarded a "scholarship" by the Aircraft Owners and Pilots Association (AOPA). The award was provided on a debit card and the terms of the scholarship stipulated that funds could only be used to pay for flight training (aircraft rental, instructor fees, etc.). The debit card was loaded with the scholarship funds and he used approximately $4,500 of the award in 2020. He received a 1099-MISC for this amount listed in Box 3 (Other Income). Since the terms of the award stipulated how it had to be used, it seems odd that he would have to file a tax return and pay taxes at my marginal tax rate. Am I doing this correctly by simply entering it in the 1099-MISC area in TurboTax?

TurboTax Home & Biz Windows

Hal_Al

Employee

Scholarships that pay for "qualified educational expenses" are tax free. AOPA apparently has determined that this doesn't qualify (and I think they're right).

But there is a better way to enter it in TurboTax to avoid the "kiddie tax" and maybe no tax at all*.

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in Home & Business)

- Wages & Income

“I’ll choose what I work on” Button

Scroll down to:

-Less Common Income

-Click "Visit All". You'll eventually reach a screen to enter the scholarship amount. (not available in TT online**)

*Taxable scholarship is treated as earned income for the purposes of calculating a dependent's standard deduction, so it must be entered on line 1 of form 1040 with the notation SCH.

This also, most likely, means that he does not have to file at all, as his total income is less than $12,400 (assuming he has no other unearned income-interest, dividends, capital gains). But, you might want to file anyway to get the reported $4500 to match the IRS computers.

**Online TurboTax users should use the education expense section to enter this type of income (it's also an alternate entry point for desktop users)