My daughter worked over this past year as a research intern through a REU (research experience for undergrads) program. She received a $5,000 stipend for her work. Is this taxable income? Can she consider this as income to put towards her Roth IRA? She had an additional ~$2,000 from another job but we are looking to see if she can have the maximum contribution to her Roth this year.
Mikek
It appears that her stipend was compensation for time "working" and as such would be taxable and includible in determining her maximum IRA contribution. I'm sure that the REU site can confirm whether or not it was compensation. If she received any sort of paystub, look for evidence of tax withholdings, though it is possible that the school may be exempt from Social Security and Medicare tax and she could have directed that no income tax withholding occur.
You'll know for certain if she receives a W-2 for the stipend in January.
Ira Smilovitz, EA
I've seen these in the past. They generated discussion as to how to handle. The ones I saw were issued on a 1099-MISC by the college that had the grant from the National Science Foundation. The amount of the stipend was in Box 3, Other Income, not Box 7 compensation. The NSF states: "The stipend that is paid to REU student participants is not a salary or wage for work performed. It is a traineeship, a form of student aid (like a scholarship or fellowship) provided to support a student's education/training in a STEM field. In this case, the student's training consists of closely mentored independent research. For administrative convenience, organizations may choose to issue payments to REU students using their normal payroll system." So, we concluded it was equivalent to a taxable fellowship as the student was required to perform research. As such, it would be reported just like one reports a taxable scholarship. It goes on Line 7 of the student's
1040 with the letters SCH printed on that line. It is not compensation for purposes of making IRA contributions as taxable scholarships or fellowships are not earned income unless reported in Box 1 of a W-2.So.. if she gets a 1099-MISC, put it on line 7 as SCH on her tax return. She can not use it for purposes of an IRA contribution. Additionally, it is unearned income for purposes of the Kiddie Tax (i.e., taxed on your income tax rate rather than hers). If she gets a W-2 (unlikely) with the amount in Box 1, this is a safe harbor for purposes of making an IRA contribution.
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