How to Enter 1099-MISC Fellowship Income into TurboTax

This post is a step-by-step guide to show you how you can enter 1099-MISC box 3 income and withholdings that you received for your graduate school fellowship stipend into the free version of TurboTax (2014 edition).  If you have ever tried this before, you know that it can be a frustrating process because the straightforward approach does not work!

 

 

A Few Words of Caution and Disclaimers

 

1) I have no financial degrees or certifications and I’m not a tax expert.  I’m just a PhD student who is wrestling with 1099-MISC income and has enough interest to devote time to figuring out how report it.  Please use your own judgment as to whether or not to take my suggestions.  These screenshots came from when I was preparing our tax return, so please ignore stray numbers!

 

2) I actually don’t think it’s a great idea to use only tax software to prepare your taxes – particularly the free versions, which have limited capabilities.  I think you’re much better off investing some time into understanding how to fill out the 1040 and related forms without depending on software. If you have 1099-MISC box 3 income and take the standard deduction, I’d wager that it’s far easier to just prepare you taxes by hand than to force tax software to do what you need it to, because for whatever reason our fellowship-as-stipend situation is not one that the tax software thinks exists.

 

3) This guide is not mean to be all-encompassing of how to prepare an entire tax return or even how to enter all your scholarship income.  It very narrowly discusses entering 1099-MISC income (or income not reported on any tax forms).  For a more complete picture, please see the tax section of a university website I helped develop for other common types of income for graduate students and how to calculate your net fellowship income received (all fellowship/scholarship income minus all qualified expenses).

 

Now on to the guide!  TurboTax is a very popular tax software and you can get your return to properly reflect your 1099-MISC income and withholdings, but there are some pitfalls you must avoid.  You will see my emphasis in the images in purple.

 

What You Should Be Able to Do But Can’t

 

The straightforward approach to entering your 1099-MISC box 3 income and withholdings into TurboTax is not fruitful.

 

You should be able to go straight to the 1099-MISC income section and import the form.

 

income summary for 1099-MISC

 

1099-MISC

 

TurboTax doesn’t recognize fellowship income as a reason for receiving a 1099-MISC.

 

what is form 1099-MISC

 

TurboTax forces you to explain why you received 1099-MISC box 3 income (when you fill out the return yourself it doesn’t try to prevent you from doing this!).

 

explain yourself

 

No truthful answer is satisfying to TurboTax.

 

graduate research assistant in 1099-MISC

 

Ultimately, TurboTax asks you to upgrade.

 

upgrade

Basically, as soon as you tell TurboTax that you want to enter 1099-MISC box 3 income, it tries to trap you into admitting that you are self-employed, which as a grad student you are not (almost always).  If you indicate in any way that this is self-employment/independent contractor, TurboTax will ask you to upgrade from the free version and then probably try to sign you up for a bunch of taxes you don’t actually owe.  I tried a few combinations of truthful and not-so-truthful answers before giving up on the straightforward strategy.

 

That’s enough of what doesn’t work!  Here’s what you can do to successfully enter your 1099-MISC fellowship income and withholdings.

 

How to Enter Your 1099-MISC Fellowship Income and Withholdings

 

1) Enter Your Income

 

Go to the Deductions and Credits section and Start the Expenses and Scholarships section.

 

deductions and credits

 

This is the first screen you will come to.

 

education expenses

 

You have to enter a bunch of info about your school and yourself.  (I did not have a 1098-T this year so I said “no” to that question and I’m not sure how this would play out if you had to enter both a 1098-T and a 1099-MISC.)  If you have any expenses from your degree, certainly enter them.

 

Finally, you get to the relevant screen!  Say “Yes” to having a fellowship and then enter your fellowship income (from your 1099-MISC box 3) into the appropriate field.

 

fellowship income

 

Now TurboTax knows about your income, but unfortunately you have to go elsewhere to enter the tax you had withheld (the entire reason you received the 1099-MISC in the first place!).  Wouldn’t this be more straightforward if it just let you enter the 1099-MISC with box 3?

 

(If you received a stipend but no official tax forms, you likely had fellowship income with no income taxes withheld.  My university and some external fellowships send out a “courtesy letter” in this case, which states that your income was X but they cannot guide you in how to file your taxes.  If you can’t offset that income with qualified educational expenses such as tuition, it is taxable.  You simply follow step 1 of this guide to enter the income but can skip step 2 because you did not have any tax withheld.)

 

2) Enter Your Withholdings

 

To tell TurboTax about the income tax you had withheld from you fellowship, as reported on your 1099-MISC, scroll down in the main list in the Deductions and Credits section to Estimates and Other Taxes Paid and click on Other Income Taxes.

 

deductions and credits other income taxes

 

Scroll down to the last section and under Other Income Taxes Paid in 2013 choose Withholding not already entered on a W-2 or 1099.

 

other income taxes withheld

Then just enter the withholding from your 1099-MISC box 4.

 

other withholding

 

What the End Result Should Be

 

According to Publication 970 p. 6, you should report your fellowship income on line 7 of your 1040 (or line 1 of your 1040EZ or line 7 of your 1040A).  You should note the letters “SCH” for scholarship and the amount of the scholarship next to it.

 

From the 1040 instructions p. 21: “The following types of income must also be included in the total on line 7… Scholarship and fellowship grants not reported on Form W-2.  Also, enter “SCH” and the amount on the dotted line next to line 7.  However, if you were a degree candidate, include on line 7 only the amounts you used for expenses other than tuition and course-related expenses.  For example, amounts used for room, board, and travel must be reported on line 7.”

 

This was the end result on the 1040 A TurboTax prepared for me.

 

1040 A line 7

 

What the End Result Should Not Be

 

Easily the biggest pitfall in trying to report 1099-MISC box 3 fellowship income is to accidentally say that you are self-employed.  If you follow the guide above that won’t happen, but if you are preparing your taxes yourself or outsourcing the work to someone else, just make sure you don’t go down that rabbit hole.  If you accidentally say you are self-employed you will pay lots of extra taxes that you don’t owe!

 

Another way people have found to get 1099-MISC box 3 fellowship income into TurboTax is to report it as gambling income.  The numbers will turn out correctly, but instead of the desired “SCH” label, you will have a “G” label.

 

I hope this guide was helpful for you!  In the next couple weeks I will prepare similar guides for TaxACT Free Federal Tax Return for Everyone! and possibly also H&R Block Software and TaxSlayer (affiliate links).

 

If you found this guide helpful and want to use TurboTax to prepare your tax return, I would really appreciate it if you would use my link below to sign up for it – the blog will earn a small commission!  Thanks!

 

 

Did this strategy work for you in entering your 1099-MISC box 3 fellowship income and withholdings into TurboTax?  What are alternative methods you have used?  Have you ever had to bend the truth to force tax software to come to the right conclusions?

 

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14 Responses to "How to Enter 1099-MISC Fellowship Income into TurboTax"

  1. Richard says:

    Thanks, Emily. I’m looking forward to reading about how the other software deals with 1099-misc scholarship and fellowship income. It is especially disappointing that the 2012 version of turbotax didn’t make you jump through these hoops.

    I think a lot of the value in tax software is the e-file at the end. Do you guys print and mail? From what I understand, the free e-file options are limited to simple returns and/or low income filers.

    1. Emily says:

      Thanks for being the first to comment! Yes, it is too bad that the versions change from year to year and can decide to ignore our population!

      We have printed our state returns and sometimes federal in the past (or submitted through software) but are planning to e-file this year. I just checked and our AGI is low enough but thanks for pointing that out for others who earn more! Depending on how difficult the software is to use, I probably would prefer to use the free fillable forms and then print them (since we have to do that for the state returns anyway) if free e-filing wasn’t an option.

  2. I had 1099-misc income this year from work I do for a foundation that is affiliated with my job. Technically I’m not self-employed, yet they paid me in a 1099, which messed up my taxes. Because the foundation is trying to appear separate from my job (I work for a school, the foundation is an alumni foundation), I’m stuck with the self-employed designation and taxes…
    Tara @ Streets Ahead Living recently posted..You aren’t entitled to anything

    1. Emily says:

      That it’s confusing. If you’re not self employed or an independent contractor (for that job) what do you consider yourself? And I guess to the IRS’s concern, who is paying your payroll taxes?

  3. kate says:

    Hi Emily,
    This post is extremely helpful, thank you! I wanted to ask how you get turbo tax to recognize the misc-1099 for the NC state return. Turbo tax is giving me a hard time with the state return as well. Unfortunately, my taxes are a little more complicated by itemizoing instead of taking the standard deduction. Thanks again!

    1. Emily says:

      What is the problem exactly? You should be able to enter both federal and state tax withheld under the federal credits section. That was my first thought…

      1. Emily says:

        I just finished my mock draft of my NC taxes and the refund TurboTax calculated matches the one I did manually. (I can’t see my NC state return in TurboTax since I’m using the free version.) I didn’t do anything special related to the 1099-MISC in the state taxes section. Please furnish more details. :)

  4. kate says:

    Emily,

    Thanks for your response. Unfortunately, I am considered a part year resident since I moved to NC mid-year, therefore I must file for both states. In the NC state return Turbo Tax is not recognizing that a portion of our income is attributed to the previous state and showing income that we have already reported to the other state and that was taxed by the other state. In addition, it does not recognize the NC State taxes paid under the 1099-misc that were added per your tutorial on the federal. I don’t think you will be able to provide assistance given the unique nature of our situation. Thanks again.

    1. Emily says:

      I encourage you to prepare your return manually. The NC return is really quite short and simple after you have since it starts with the federal AGI. I feel for you with the part year returns. I just think it will be easier to go forward with doing it yourself rather than struggle with software. Good luck!

  5. […] presents How to Enter 1099-MISC Fellowship Income into TurboTax posted at Evolving Personal Finance. Entering 1099-MISC box 3 income from your fellowship into the […]

  6. […] second in this series on how to convince tax software to accept grad student fellowship income – last week was TurboTax, this week is TaxACT.  I’ll refer you to sections of that post so I don’t have to repeat the […]

  7. […] @ Evolving Personal Finance writes How to Enter 1099-MISC Fellowship Income into TurboTax – Entering 1099-MISC box 3 income from your fellowship into the free version of TurboTax […]

  8. Katie G. says:

    Hi Emily!

    I was really struggling with this in 2014 turbotax even though I didn’t remember having quite this much trouble last year, and I googled “turbotax 1099 MISC for graduate students 2014″ and your article was the 5th link listed! I hadn’t seen your site before but this is awesome! All of the help on the turbo tax website is completely useless. I really appreciate you taking the time to make this guide. Would you mind if I post this article on the BEPSA facebook or BEPSA resources page? :)

    1. Emily says:

      Please share as widely as you would like! I’m so glad you found it helpful.

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