2 questions

[JG EA]

A client received a "stipend" from a university for attending courses on the weekend(?). They reported it on a 1099 Box 7. Since a stipend means "salary" is it automatically subject to SS/Med? The course was directly related to the client's position - teaching.

This same client will be taking a trip for education and will receive academic credit for the trip. It will all be paid by the client however. Remembering the court case of travel for education, this sounds doubtful as a deduction, but does the fact credit will be given change things?

[Bees Knees]

Q1) It depends on the facts and circumstances, but I believe the issue here has to do with whether the benefit is exempt from FICA and FUTA. TTB, page 23-7 shows that a student working for his or her school is exempt from FICA and FUTA.

This is taken from Reg. Section 31.3121(b)(10)-2 which address the issue of when a student receiving a stipend would be exempted from employment taxes.

I think in your situation, the school issued a 1099 because the school felt the stipend was exempt from employment taxes. Often, however as is the case with many payers, they put the benefit in the wrong box. If they think it shouldn’t go on the W-2 because it is not subject to employment tax, then they should have put it in box 3 rather than box 7 of the 1099-MISC.

I would have your client go back and ask the school why they put the benefit in box 7 as non-employee compensation. Box 7 is subject to SE tax as a self employed individual. This client is obviously not a self employed person.




Q2) As to the trip being eligible as an education deduction because of receiving academic credit, sometimes that works against the taxpayer. The courts have denied education deductions because the course is part of a degree program that will give the student a new employment status after graduation.

[JG EA]

Thank you Bees Knees

I thank you once again.