It's complicated, very complicated. There are (at least) three different ways to handle it.
#1
The IRS considers anything in box 7 of 1099-MISC to be self employment income. TurboTax (TT) aggressively steers you in that direction. If you try reporting box 7 income as anything else, your chances of hearing from the IRS are very high.
That said, the key to getting TT to treat it as other income is to follow these steps:
Enter the 1099-Misc
On the next screen Describe what the payment was for
On the next screen select "none of these apply"
On the next screen select "No it didn't involve work like my main job"
On the next screen select "I got it in 2019" ONLY
On the next screen select No, it didn't involve intent to earn money
TT will put the amount on line 8 of Schedule 1 as "other income", but identify it as 1099-Misc income.
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#2
If you are a dependent, on your parent's tax return, you want this income to be treated as scholarship income, not "other income", because it affects the calculation of your standard deduction and it may invoke the "kiddie tax", if you are under 24.
Do not enter the 1099-Misc, per se. Instead, after entering your 1098-T, at education expenses, you will be asked if you had any scholarships, not reported on the 1098-T. Answer yes and enter the amount. Then indicate that this scholarship was used for room & board. That will put the income on line 1 of form 1040 with the notation SCH.
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#3
You have an erroneous 1099-Misc.
If you received an erroneous 1099-Misc, You have several choices:
- Ideally, you get a corrected 1099-misc from the payer
- Don't report the 1099 on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly (as scholarship--see #2)
- Report the Income on schedule C and take a deduction under other expenses, call it something like "nominee recipient adjustment". Then report it as SCH income.
- Report the income as misc line 8, Schedule 1 income (enter in TurboTax at the 1099-Misc screen) . Then enter a line 8 deduction, for the same amount. In TurboTax (TT), enter at:
- Federal Taxes tab
- Wages & Income
- “I’ll choose what I work on” Button
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income - Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front. Briefly explain at description. Then report as SCH income - Use #1 or #2 and Hope you can explain it away when & if the IRS contacts you
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