<p>Update, but no resolution on the issue of REU stipends and self-employment tax.</p>
<p>After many hours of waiting to talk to the IRS by both D2, myself and both of us together (aggravated by long wait times and a very poor/erratic/inconsistent automated phone system), the IRS correction to her taxes has been resolved. They concluded that the IRS should have considered her earned income on Line 21 in calculating her Standard Deduction, so her taxes stand as I submitted them. </p>
<p>The agent told me that supposedly what will help key them into counting line 21 income in the calculation of the Standard Deduction for Dependents is stating something like it is ‘earned income from fellowship’. I had put, ‘income from internship; not subject to self-employment’, as I was more concerned about the self-employment part than the fact that it was earned income. Is the IRS system really smart enough to catch that subtlety or will they just ignore anything in line 21? I’m not so sure. </p>
<p>As far as the larger question of self-employment tax? That’s going to be one of my questions the next time I talk to my accountant. For now, I’m just sticking to how I did it until I find out in a year that it was wrong. :-SS </p>