Tax Question

[goirish1]

Hoping someone on here has the expertise to provide feedback. Upon commissioning, a university donor provided each Midshipman with a cash grant of $XXXX to help them get started with initial expenses ie first month rent, uniforms, etc..basically whatever the new Naval Officer needed to spend it on. Unexpected, but understood, DS received a 1099 MISC from the University for said amount (yes, nothing is ever free). We are currently completing taxes and included on the federal return. Our state does not charge taxes on military pay; but including this as a 1099 MISC makes it subject to tax...so DS now owes; unless we list under other ROTC income for the $XXXX dollar amount. I"m thinking its in our best interest to just go ahead and claim and pay the taxes on it, as I dont think its really other ROTC income, but wanted to see what others thought.

 

[OldRetSWO]

Hoping someone on here has the expertise to provide feedback. Upon commissioning, a university donor provided each Midshipman with a cash grant of $XXXX to help them get started with initial expenses ie first month rent, uniforms, etc..basically whatever the new Naval Officer needed to spend it on. Unexpected, but understood, DS received a 1099 MISC from the University for said amount (yes, nothing is ever free). We are currently completing taxes and included on the federal return. Our state does not charge taxes on military pay; but including this as a 1099 MISC makes it subject to tax...so DS now owes; unless we list under other ROTC income for the $XXXX dollar amount. I"m thinking its in our best interest to just go ahead and claim and pay the taxes on it, as I dont think its really other ROTC income, but wanted to see what others thought.

My opinion: Not other ROTC income, if it was, it would be on the W-2 from DFAS.
By the way, are you talking about your son's return or your return? As an Ensign, I was helping my folks with their returns, I would have hated to
be on my parent's return while I was doing other people's returns.

 

[EDelahanty]

I’m not a tax attorney, just a humble citizen with a simple question. Why is this not a gift? As you describe it, your son provided no service to the donor.

 

[goirish1]

My opinion: Not other ROTC income, if it was, it would be on the W-2 from DFAS.
By the way, are you talking about your son's return or your return? As an Ensign, I was helping my folks with their returns, I would have hated to
be on my parent's return while I was doing other people's returns.

My son is filing his own return. I'm just reviewing his return before it is filed.

 

[goirish1]

I’m not a tax attorney, just a humble citizen with a simple question. Why is this not a gift? As you describe it, your son provided no service to the donor.

Good question....it was presented as a gift from a donor on the day of commissioning so we were not expecting the 1099 MISC. However, we did receive the 1099 for the exact amount from the University...so I cant see anyway around it, other than to claim and pay federal and state taxes on it, which is probably the safer route so that the IRS doesn't come knocking at a later date.

 

[GWU PNS (emeritus)]

By coincidence, we just finished our Ethics training where we discussed receiving gifts. If I understand the situation, someone from the university, or at least affiliated with the university, is offering all Midshipmen with a cash gift of a 4 digit amount? And this gift is made after commissioning?

It probably is fine, but anytime someone is offering "gifts" to newly commissioned officers, that should be socialized with the unit chain of command. If it is listed and catalogued with NSTC, it will be fine. But since the university likely receives federal research grants, it is important to just make it known. Especially if it is enough that DS is filing taxes for it.

There are companies such as USAA that offer career starter loans to help with initial expenses. Those are fine because they are loans that get repaid.

I am not trying to scare anyone, but he needs to be careful accepting gifts upon commissioning.

 

[goirish1]

By coincidence, we just finished our Ethics training where we discussed receiving gifts. If I understand the situation, someone from the university, or at least affiliated with the university, is offering all Midshipmen with a cash gift of a 4 digit amount? And this gift is made after commissioning?

It probably is fine, but anytime someone is offering "gifts" to newly commissioned officers, that should be socialized with the unit chain of command. If it is listed and catalogued with NSTC, it will be fine. But since the university likely receives federal research grants, it is important to just make it known. Especially if it is enough that DS is filing taxes for it.

There are companies such as USAA that offer career starter loans to help with initial expenses. Those are fine because they are loans that get repaid.

I am not trying to scare anyone, but he needs to be careful accepting gifts upon commissioning.

This was handled via the unit. The NROTC senior Class advisor gave each senior Midshipman a letter describing the gift. It was coordinated through the university which is why 1099 came from university. The letter was provided prior to commissioning, the funds disbursed after commissioning. Most used as security deposits for rent when relocating. The tax reporting just caught us off guard because historically you didn't have to pay taxes on the ROTC scholarship unless exceeded tuition etc.....I realize this isn't the same as the scholarship but the 1099 wasn't something we thought about at the time. We are including in his income when he files and just paying the taxes on it...Federal didn't matter too much because he had federal withholding, but it did put him in scenario where he owes state taxes on this amount because it doesn't qualify as military income (we live in a state where military income is not subject to state income tax) but this gift is.

 

[Sealion II]

IRS considers this a prize or award. If it's above $600 a 1099-MISC is necessary. In the corporate world, some companies that want to award $XXXX will gross it up to account for the taxes.