Taxable Grant

[Bill Tubbs]

Client worked at National Institutes of Health and received a 1099-G with an amount in Box 6 "Taxable Grants". The 1040 instructions say to report this on F1040 Line 21.

Client did expect this to be taxable income and did the appropriate estimated taxes. What I am wondering is if this can be added to "earned income" for the Making Work Pay Credit.

Any thoughts?

Bill

[Koss]

Taxable Grant

I don't think it is considered earned income for purposes of the MWPC, because it is not subject to self-employment tax or FICA. Even taxpayers who have genuine earned income do not get the MWPC if the earned income is exempt from self-employment tax (for example, Amish taxpayers).

However, you should be careful with your software on this one. If the client has no other income, it may not make a difference, but...

The instructions and worksheet for Schedule M actually back out any taxable scholarships and grants. But the only reason the amount gets backed out is because a taxable scholarship usually is entered on Line 7--not Line 21.

If you're entering it on Line 21, and then backing it out of the calculations on Schedule M, then you are backing out something that isn't there to begin with.

BMK

[Bill Tubbs]

Thanks Burton.

Many thanks for your insights (on this post and many others).

Bill