“I got a 12 week fellowship/internship with the National Academies (FAQ), which pays $8,240 for the full period. I am now trying to figure out if I have to
a) pay taxes on this money? (I would guess yes)”---->I guess it depends;the taxability of your fellowship generally depends on the type of expenses that are paid with the benefits, and whether you receiving the benefits is a candidate for a degree(you are a candidate for a degree if you attend a primary or secondary school or are pursuing a degree at a college or university, or attend an accredited educational institution that is authorized to provide.).If you are a candidate for a degree, and your fellowship is used to pay qualified education expenses such as tuition and fees, books, supplies, and equipment, your benefits would generally be tax-free. But any part of a scholarship or fellowship that is payment for past, present, or future services could be subject to tax.(In general, because paid internships constitute employment, both interns and employers must take certain steps. Interns must report the income they receive on their state and federal income taxes.)
“(b) if I can claim the temporary living expenses (second rent in DC (while keeping my normal place in a different state), local public transport to work, travel to DC, and 50% of per diem for DC) on Schedule C or Form 2106?”---->It also depends on the situation; as long as you are treated an an EE, you need to report it on Form 2106 and Sch A line 21, unreimbursed EE expenses, as a sort of EE; an intern is not an employee if the employer and the student understand that the student is not entitled to wages for the time spent in training;if the student is not necessarily entitled to a job at the conclusion of the training period or etc. As an non-EE, you need to claim expenses on Sch C of 1040;Sch C is only for self employer,i.e, an Independent contractor/subcontractor. Schedule C is for business expenses. I don't think it would apply at all to this case for you, a paid intern.
“ And if yes, Schedule C or 2106, and how would I know?”---->As said above, you report your job related deductible expenses on Form 2106 as an EE while you need to report them on Sch C of 1040 as a self employer.However, Be very careful if you decide to do this. There are many factors you need to consider. A few are: where is your tax home in relation to this job, were you considered an employee (were you paid) ,how long was the internship, were you reimbursed for any expenses, do you claim yourself or do your parents claim you, etc. There are more facts to consider as well. Also, if you are able to claim any deduction, you will more than likely be claiming 'unreimbursed business expenses.' This means that in order to claim a deduction your expenses are first limited to 2% of your AGI (so in order to deduct you must go above and beyond this amount). Also, this would mean that you would be itemizing your deductions so you would be giving up your standard deduction of $5800 for 2011(if you are filing as single). Are your job expenses and other itemized deductions more than this as a student?
“(c) if I can claim part of the expenses (probably just the trip to DC) as education expenses?”---->No, I do not think so; qualified education expenses for purposes of tax-free scholarships/fellowships are expenses for tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.
“On the website they say that the program is not considered employment, but "a short-term (12-week) fellowship opportunity that offers hands-on training and education in science and technology policy". And the "Fellowship stipend/grant is intended to offset living expenses for the period and not intended as a way to earn money." So I can I claim it as business expense?”--->I guess UNLESSS you are treated as an EE, Form 2106 is NOT for you; then perhaps Sch C is for you to deduct business related living expenses on your return. If the internship income is listed in box 7, Non Employee Compensation, of the 1099 Misc, you should file it as self employment income on Sch SE as long as the amount on line 4 is $400 or exceeds $400. Use IRS form 1040 and attach Schedule C or Schedule C-EZ. Using those forms, you are allowed to deduct any business expenses related to making that income. Then enter your net income from Schedule on your 1040.
“ It would add up to more than the standard deduction (around $8100), so if that money counts as income it would be nice to deduct it again.”---->Correct as long as you file Form 2106; generally, you must decide whether to itemize deductions or to use the standard deduction. The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. You should itemize deductions if your allowable itemized deductions are greater than your standard deduction. REMEMBER; as long as you file Sch C of 1040, you can’t include the amount( I mean your temporary living expenses) on your Sch A of 1040.
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