Tax Question--1099 MISC Box 3, Other Income, Summer Research Stipend

[BelknapPoint]

The same compensation is treated as both earned & unearned income? Does that mean the kiddie tax would come into play? If so, that may explain what TT has done, although I still don’t understand why the tax bill is $405 on a $4050 taxable earnings (or non-earnings).

Are taxable scholarships considered both earned and unearned income???

Yes!! Isn’t the IRS wonderful?

For purposes of determing the standard deduction for a dependent, taxable scholarships are considered to be earned income, which is a good thing. See the footnote at the bottom of the Standard Deduction Worksheet for Dependents on page 30 of the 1040 instructions.

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

In determing whether or not the kiddie tax applies (form 8615), taxable scholarships not reported on a W-2 are considered to be unearned income. See page 1 of the instructions for form 8615.

https://www.irs.gov/pub/irs-pdf/i8615.pdf

If the research stipend is a taxable scholarship, and given the numbers you have provided, the kiddie tax would never come into play, because all the amounts reported on the W-2 and 1099-MISC would be covered by your son’s standard deduction.