Hello, this is my first year as a SMART Scholar and I am getting mixed messages about how to deal with taxes. I am hoping that somebody can help clear things up.
As a first year grad student scholar, I received the following amounts:
$19,166.65 – Regular stipend. (August 2023 - December 2023) I believe that this should be taxed as normal income.
$2,500 – Healthcare allowance. I am not sure if this should be taxed at all or if we should somehow deduct our healthcare expenses for the year. I also do not know if we can deduct only up to $2,500 or more if we spent more on health insurance.
$1,000 – Miscellaneous allowance. I am not sure if this should be taxed or if we should somehow deduct expenses for books or a laptop. I also do not know if we can deduct only up to $1,000 or more if we spent more on miscellaneous educational expenses.
$2,000 – Reimbursement for travel to the sponsoring facility. The travel actually cost me more than $2,000 so I think this amount should not be taxed at all.
In total, $24,666.65 was reported in box 3 of the 1099-MISC.
I spoke with an IRS Representative and they said that I should be considered self-employed based on how the income was reported with form 1099-MISC. The benefit of this is that I can easily deduct my healthcare, travel, and miscellaneous expenses. The downside is that I would need to pay a lot more in taxes.
Previous posts on this forum says that we should absolutely not be considered self-employed. The benefit of this is that we do not pay self-employment taxes. However, I do not understand how I would go about deducting the travel reimbursement or the healthcare allowance from my income.
Hopefully a past SMART scholar has gone through this before and can help out! I think this info would be super useful for all of the new scholars as we enter tax season.
First Year Taxes
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armadillo99
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- Joined: Wed Feb 21, 2024 6:33 pm
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Phase 2 Scholar
Re: First Year Taxes
I am not a tax expert, and you can get more accurate answers from a tax professional. It's probably worth it: a lot of SMART scholars either pay too much in taxes or get audited (I'm not kidding here. A lot of us--myself included--have been audited by the IRS.). Hopefully someone who has talked with a tax professional can answer your question, because I have not.
If you report your income from SMART as scholarship income and avoid the self-employment tax, I don't think you'll be able to deduct travel expenses. You should still be able to deduct your school's mandatory fees, though. You might could do some digging and see what expenses the IRS says you can deduct from scholarship income, but I highly doubt travel shows up on that list. Self-employment tax is 15.3%, so even without the deductions, this is likely still your most tax-efficient approach.
If you report your income from SMART as scholarship income and avoid the self-employment tax, I don't think you'll be able to deduct travel expenses. You should still be able to deduct your school's mandatory fees, though. You might could do some digging and see what expenses the IRS says you can deduct from scholarship income, but I highly doubt travel shows up on that list. Self-employment tax is 15.3%, so even without the deductions, this is likely still your most tax-efficient approach.