The most widely recognized use of a 1099-MISC is to report non-employee compensation aka self-employment income. The fact that Form 1099-MISC is sometimes used to report fellowship pay, which is not self-employment income, can be quite confusing for grad students and the people and software that prepare their tax returns.
If a 1099-MISC is used to report fellowship pay, the pay will appear in Box 3 “Other income.” Fellowship pay is considered similar to an award. In its instructions to organizations, Form 1099-MISC (p. 5) states:
“Box 3… The amount shown may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages, Indian gaming profits, or other taxable income.”
The 1099-MISC instructions (p. 5) make explicitly clear that the award should not be compensatory or paid in exchange for work:
“Also enter in box 3 prizes and awards that are not for services performed.”
Interestingly, the 1099-MISC instructions (p. 2) state that fellowships and scholarships should not be reported on a 1099-MISC:
“Scholarships. Do not use Form 1099-MISC to report scholarship or fellowship grants. 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. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported by you to the IRS on any form.”
It seems that the universities that use the 1099-MISC to report fellowship pay are skirting this prohibition because the scholarship and fellowship grants are not being given for services. That type of pay is compensatory and usually referred to as an assistantship in the case of graduate students. The instructions clearly state that universities do not have to report non-compensatory taxable fellowships and scholarships to the IRS. However, some universities do report non-compensatory fellowships and scholarships using a 1099-MISC. Even though the 1099-MISC is a confusing form to receive, it might be even more confusing to not receive any communication whatsoever.
I have observed that use of the 1099-MISC to report fellowship income correlates with grad students having taxes withheld from their fellowship pay. The 1099-MISC, unlike the 1098-T, allows the university to report both the gross pay received and the amount of federal and state tax withheld.
If you receive a 1099-MISC that reports your fellowship income, you should report it as fellowship/scholarship income rather than as 1099-MISC “other” income. Your gross income from this source will appear in Box 3. Your amount of federal tax withheld will appear in Box 4, and your amount of state tax withheld will appear in Box 16.
If your income is reported in Box 7 instead of Box 3, this is considered self-employment income and you will pay a much larger amount in tax, so make sure that you were properly categorized. (Again, fellowship pay is not self-employment income, so self-employment pay from a university implies that you served as a contractor on a specific project outside of your direct role as a graduate student, and this was likely explicitly discussed with you in advance.)
Parent article: Think about Your Grad Student Income and Assess the Tax Forms Your University Generated
We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.
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I’m still confused about the 1099-MISC and whether my scholarship/fellowship money is taxable. Currently it is making my federal return show that I owe taxes. However, I made very little income. This is mainly due to the awards I received. On the 1099-MISC it shows the amount in Box 3 and no amounts in any other boxes (nothing was withheld). I also received a 1098-T for other scholarship rewards. My actual tuition paid was fairly small so the amount received is much higher than tuition and fees. Does that mean all the other amount I received is taxable (more than $10k)?
Thank you!
If you’re using tax software, it’s likely reporting your Form 1099-MISC fellowship income as self-employment income, which is incorrect.
“How much of my fellowship/scholarship income is taxable?” is actually a complex question. If you received a lot more in scholarship/fellowship income than what was paid for tuition and so forth, you will have a lot of taxable income.
I recommend joining my tax workshop https://gum.co/tax2019gradstudent to find all your allowable deductions (software usually misses one big one and sometimes some small ones). Definitely do not allow your tax software to report your income as self-employment, because you will radically overpay your tax.