1099-MISC and Tuition Fellowship
Hello,

I received a fellowship from my undergraduate institution to pay for graduate school, and I used this fellowship to pay for tuition expenses. By my understanding of Publication 970, this fellowship should not be taxed because it was used for tuition only, and because I did not work for the fellowship (Also note I am a U.S. citizen).

However, I received a 1099-MISC form with the fellowship reported in box #3 ("Other Income).

I believe that this might have been a filing mistake, as publication "Instructions for Form 1099-MISC" (http://www.irs.gov/pub/irs-pdf/i1099msc.pdf) states that "Do not use Form 1099-MISC to report
scholarship or fellowship grants.... Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) are not required to be reported by you to the IRS on any form."

I have three questions:
1) Am I correct in believing this fellowship should not be taxed?
2) Should I contact my undergraduate institution to ask them to refile the 1099-MISC form? If so, how might I make my case that they mis-filed it?
3) If the form is filed correctly, how should I report the fellowship on my 1040 forms so that it is not taxed (Turbotax was no help here).

Thank you very much for your help.

“1) Am I correct in believing this fellowship should not be taxed?”-->I guess so. However,it depends ; unless they are excluded from taxable income under Section 117(a) of the IRC, fellowship payments are taxable. Fellowship amounts are nontaxable as long as you are a candidate for a degree at an educational organization: your fellowship amount is used for your qualified tuition and related expenses,i.e., tuition and fees required for the enrollment or attendance of a student at an educational institution.
“ 2) Should I contact my undergraduate institution to ask them to refile the 1099-MISC form? If so, how might I make my case that they mis-filed it?”--->I don’t think so;in general,as many understand, it is not true that this income should have been reported to you on form W-2. The reason is that if it were reported to on a W-2, then it would have had to be reported as taxable income.So, they shouldn’t use Form 1099-MISC to report Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2. By reporting this on a 1099-MISC, and even though it has been reported to the IRS on this 1099, this does NOT necessarily mean that this is taxable income to you. Therefore, you need to determine if this is taxable income and if it is, then some expenses may be deductable from the total of the 1099-MISC.
“3) If the form is filed correctly, how should I report the fellowship on my 1040 forms so that it is not taxed (Turbotax was no help here).”---> If it is taxable, then you need to report it as other income on Form 1040.

Thanks for your advice as I work on sorting this out. It's much appreciated.

I'm having the same issue except that I am using only part of the fellowship for tuition expenses. The rest is used for living expenses. I have no idea how to fill out my taxes so that the part of my fellowship that is being used for school-related expenses is not taxed. Any advice would be greatly appreciated!

“ I have no idea how to fill out my taxes so that the part of my fellowship that is being used for school-related expenses is not taxed.”----> Fundamentally, Fellowship payments are taxable, unless they are excluded from taxable income under Section 117(a) of the Internal Revenue Code.However, it depends on the situation as said above; the taxability of your scholarships and fellowships generally depends on the type of expenses that are paid with the benefits, and whether the recipient, you , receiving the benefits is a candidate for a degree. Aslong as you are a candidate for a degree, and your fellowship is used to pay your qualified education expenses such as tuition and fees, books, supplies, and equipment, your benefits would generally be tax-free. But any part of your fellowship that is payment for past, present, or future services could be subject to tax. if any of your fellowship was used to pay for living expenses, boarding , or food, then it’s taxable. If you file Form 1040, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7.
Please visit the IRS Website for more info here; http://vpf-web.harvard.edu/ofs/tax_s.../fell_hand.pdf
Publication 970 (2010), Tax Benefits for Education