Are Navy ROTC stipends taxable?

A

ant189vm

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My son starts Navy ROTC this month. He will receive a $250/month stipend and $400/semester for book allowance. Are either of these two sources of income taxable for him? I've gotten conflicting messages from this forum (older posts), google, and current students.
 
Agree with above.
  • Stipends are not Federally taxable.
  • ROTC scholarship funds, when used for tuition, books, and mandatory fees is not Federally taxable.
  • ROTC scholarship funds ARE Federally taxable when used for Room and Board. (Per IRS Publication 970)
  • Summer training pay is Federally taxable.
 
Are room and board waivers taxable if they come from the university rather than from ROTC? Some universities waive room and board for ROTC scholarship recipients. I can't seem to find a consistent answer when I research this online. Some sources suggest that room and board waivers are taxable if they come from an employer but not necessarily if they come from a non-employer. ROTC would be considered an employer if ROTC scholarship money is used to cover room and board, but is the university itself considered an employer if they simply waive room and board costs?
 
Any funds received that cover college room and board (and I'm not certain a waiver falls into this category) is taxable income, regardless of the source. I'll wait for a tax accountant to comment as to whether a waiver itself is taxable, but I expect it is, since the government always wants to get their "fair" share.
 
What is the definition of a "stipend"? Does is show up on a special W4 or 1099 form? I note that my son's pay, at USNA, shows up on a W4 as taxable income...even though some Navy sources call that a "stipend". I refer to the USNA Annual Stipend and Budget book that sometimes calls it a stipend and on page 3 calls the money paid "taxable income". Perhaps a CPA can clear this up?
 
Can one of you CPA's, please explain. For 2021 a single taxpayer is not required to file a tax return if they earn less than $12,400. So, why would it matter whether the stipend is taxable? My DS will earn less than $12,400 per year when he is in college. He has no investment income at all. Even if he get's a scholarship that includes room and board, that would likely be less than $12,400. Would the room and board scholarship be taxable to me if I list him as a dependent?
 
NJROTC-CC said:
Can one of you CPA's, please explain. For 2021 a single taxpayer is not required to file a tax return if they earn less than $12,400. So, why would it matter whether the stipend is taxable? My DS will earn less than $12,400 per year when he is in college. He has no investment income at all. Even if he get's a scholarship that includes room and board, that would likely be less than $12,400. Would the room and board scholarship be taxable to me if I list him as a dependent?
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Not a CPA, but the biggest reason is he’s likely due a sizable tax return. And while he may not be required to file a federal tax return, your state’s rules may be different.
 
Korab said:
Not a CPA, but the biggest reason is he’s likely due a sizable tax return. And while he may not be required to file a federal tax return, your state’s rules may be different.
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We have no state income tax. This is the first year DS, who is in Senior year of HS is working. So, I guess they are taking out some Federal withholding that he might be able to get back (obviously not FICA or workers comp.) We will look into filing for 2021. He has not filed before. Food for thought. That's why I am lurking on this forum.
 
As per prior posts, the $250/month stipend and $400/semester book allowance are not taxable. How is his room & board being paid for? If ROTC Scholarship funds, then taxable...as is summer training pay.
The IRS publication @Capt MJ posted may have the answer but I couldn't figure it out. Perhaps contact the IRS??
 
NJROTC-CC said:
Can one of you CPA's, please explain. For 2021 a single taxpayer is not required to file a tax return if they earn less than $12,400. So, why would it matter whether the stipend is taxable? My DS will earn less than $12,400 per year when he is in college. He has no investment income at all. Even if he get's a scholarship that includes room and board, that would likely be less than $12,400. Would the room and board scholarship be taxable to me if I list him as a dependent?
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Sure, if the student earns less than 12400, then there wouldn't be any tax anyway. However as someone else mentioned, it could be taxable for state purposes as i don't think any state has the 12400 standard deduction like the IRS does. However, you are assuming that the student has no other earnings. Plenty of kids (my clients) have investments that their parents bought for them when they were kids and some of them have to pay taxes on them because of the kiddy tax laws. Plus for all we know, the kid has a part-time job that gets them near the limit. Any other taxable income would make them have to file a tax return. Taxable stipends and or taxable scholarship (because it was not used on tuition) would just add to the taxable situation. As for the stipends, they aren't taxable and no 1099s are issued for them. Not sure if your son/daughter was a dependent and had taxable room and board if it would be taxable to them or the parents. I say this because of another situation that used to come up but is mostly gone.. Your child starts school in September 2021. The tuition is 10K for the first semester and 10k for the second semester. At the end of 2021, you would receive a 1099-T that said you paid 20K for the year. That means you get credit for 2 semesters even though you were only in school for one semester and only paid for one semester. Of course this isnt true because you only paid 10K in 2021 and 10K in 2022. The colleges were too lazy to figure out what you actually paid compared to what you were supposed to pay. As the parents of the dependent, you would get a credit for the 20K included on the 1099-T. Let say the school gave you a 5000 scholarship every year. So the 1099-T would include the 20K and a 5000 scholarship. That means when you prepare the 2021 return, you would use 15K as the amount to figure out the credit. Now you do the same for year 2 and year 3 with no problem. So year 1, you get the benefit of two-semester when you only deserved 1. The problem occurs in the final semester in what is really year 5. The cost of that semester was included on the 1099-T of year 4 because the 1099-t includes the full tuition regardless of when you paid it. Now comes the final semster. There is no tuition connected to the 1099-T but you still get the 5000 scholarship for that semster and it's included on your 1099-T. That 1099-T has no tuition expense but has 5000 in scholarship. You know have 5000 in taxable income. And if the student was your dependent, the parents pay the tax. That has been fixed in the last 2-3 years as schools have changed to actual paid compared to full semster price. However, this shows that the parents were responsible for the tax if the students were dependents
 
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