Question

Does my daughter even have to file a return?

Forum|Forum|2 years ago
March 19, 2024
2 replies
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My daughter is a college student and earned about $3,000 at school. Over the summer she worked at a place that paid her $6500, totaling $9500. Neither employer withheld any taxes. The second employer reported the income on a 1099-MISC form.

According to the IRS website, I don't think she even needs to file, but TurboTax keeps calculating that she owes $906!

So what's going on? Do I misunderstand the rules or is TurboTax broken?

Thanks!

DoninGA

Employee

Yes, she must file a tax return. Her income is from self-employment and since it is more than $400 it has to be reported on a tax return. She will need to use Schedule C to report the self-employment income and expenses. The schedule C is included with a personal tax return, Form 1040.

If you are claiming her as your dependent then she must indicate on her tax return that she is a dependent.

SharonD007

Your daughter must file a tax return because the income she received on her 1099-MISC is more than $400. The balance that she owes includes self-employment taxes on the 1099-MISC income. She'll report the income from her 1099-MISC income on ‌Schedule C of her tax return. The IRS considers self-employment income as a business, so the good news is that she'll be able to deduct common business expenses from that income. To enter the business and self-employment income, follow the steps below:

Open TurboTax
Select Wages & Income
Select Self-Employment Income and Expenses
TurboTax will guide you through the interview screens to help you enter the income.

Review the TurboTax articles Reporting Self-Employment Business Income and Deductions for more information on business deductions. For additional information, review What self-employed expenses can I deduct? and How do I report income from self-employment?

Refer to the TurboTax article The Self-Employment Tax for an explanation of self-employment taxes.

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P

PrivateIdahoAuthor

Thank you very much for your help, but she’s not self employed. She worked as a research assistant at a university for six weeks over the summer. She doesn’t file as self employed and doesn’t have any paperwork to show that she’s self employed. She doesn’t have a side gig or anything. During the school year she’s an academic tutor. Does this change anything? The poor kid is facing a $900 tax bill even though she only earned $9500 all year. Thanks.

O

Opus 17

Employee

@PrivateIdaho wrote:

Thank you very much for your help, but she’s not self employed. She worked as a research assistant at a university for six weeks over the summer. She doesn’t file as self employed and doesn’t have any paperwork to show that she’s self employed. She doesn’t have a side gig or anything. During the school year she’s an academic tutor. Does this change anything? The poor kid is facing a $900 tax bill even though she only earned $9500 all year. Thanks.

That's a bit complicated. If she was self-employed, she owes 15% self-employment tax even though she doesn't owe income tax. However, being a "student" is not considered self-employed, and the stipend is not considered "compensation for work" since it is technically education and not work. This is probably why the school reported the stipend on a 1099-MISC instead of hiring her as a W-2 employee.

The next question is, was she a research assistant at her own college, or someplace else, and if someplace else, did she get school credit for it? Or was the stipend paid by a granting agency rather than the money passing through the school? If either answer is yes, then this is not self-employment.

However, if she was working at a different school, and it was more work for hire rather than education, then it might be considered self-employment even though the school reported it differently. I would need more details to think about that situation.

Because it was reported on a 1099-MISC, it is less likely that she would be audited for failing to report it as self-employment. Assuming that it was "School", she needs to answer the test questions as NO -- not like work, not for a profit, not similar to any past or future job (because it's not a job, it's school). She should file a return even though no tax is owed, because the statute of limitations only starts if she files -- if she files, the IRS has 3 years to come back and ask whether this was really school or a job. If she never files, the IRS can theoretically audit her at any time in her life.

If you want to discuss more whether this counts as a job or education, I would need to know more about the position and who paid the stipend.