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Posted by Alan on April 14, 2008, 4:59 pm
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TR wrote:
> Recipients of National Defense Science and Engineering Graduate
> Fellows receive the memo posted at: <https://www.asee.org/ndseg/upload/
> 2007-Tax-Memo.pdf>.
>
> The line "As stated in the NDSEG Terms and Conditions, you are
> considered an independent contractor, and not self-employed, and are
> not employed by either the United States Government or ASEE." confuses
> me.
>
> In particular, I am having trouble reconciling that statement with:
> "Schedule SE (Form 1040). Include amounts you receive under a
> scholarship as pay for your services as an independent contractor in
> determining your net earnings from self-employment. If your net
> earnings are $400 or more, you will have to pay self-employment tax.
> Use Schedule SE, Self-Employment Tax, to figure this tax" from Pub
> 970.
>
> No particular service is required under the terms of the fellowship.
> The fellow simply must remain enrolled in an eligible graduate
> program. Given that, what does it mean to call the fellow an
> independent contractor?
>
> My bottom line questions, I suppose, come down to (1) Does and NDSEG
> fellow have to pay self-employment taxes? (2) Particularly if the
> answer is "yes," would the fellow be eligible to file a Schedule C and
> deduct costs associated with his or her studies? More generally, how
> will NDSEG income be treated for federal tax purposes?
>
> TIA
>
The NDSEG fellowship payments follow the same rules for any other
fellowship that Congress has not provided for an exemption from
taxes. As such, any amount you receive that is not used for
qualified educational expenses is taxable income. Qualified ed.
expenses include required tuition and fees to enroll and/or
attend the school plus any other course related fees, books,
supplies and equipment. Any amount not spent on the preceding is
taxable.
The open question is whether the taxable amount is subject to SE
tax or whether you just add the amount to Line 7 of your tax
return with the designation SCH. As long as you are not required
to provide services as an independent contractor, then the
taxable amount is not subject to SE tax. The nature of the NDSEG
fellowship is that certain fellows are required to perform
services. These fellows would be subject to SE tax on any amount
of a stipend paid for services. The memo informs these fellows
that their employment is not as an employee or a part-time
employee but rather as an independent contractor and is subject
to SE tax. Note, that payment for services includes both past,
present and any future obligation you might have.
You state that you were not required to perform services.
Therefore, you report the taxable amount on Line 7 of your tax
return.
--
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