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Author: HardyWeinberg Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120820  
Subject: childcare credit Date: 11/7/2002 5:17 AM
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My wife is a postdoctoral fellow and is paid by NIH on a 1099. Does that really mean we can't get the childcare credit on federal income taxes, since her income is not 'earned'?
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Author: reallyalldone Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61951 of 120820
Subject: Re: childcare credit Date: 11/7/2002 7:29 AM
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My wife is a postdoctoral fellow and is paid by NIH on a 1099. Does that really mean we can't get the childcare credit on federal income taxes, since her income is not 'earned'?

She will either have income or be considered a full-time student with the postdoc, won't she ? I suspect you get the credit one way or another. For the coming year, if either of you have access to a pre-tax childcare account, you may want to run the numbers both ways - after a certain income level, the pretax account is often the better choice.

rad



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Author: HardyWeinberg Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61952 of 120820
Subject: Re: childcare credit Date: 11/7/2002 8:50 AM
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She will either have income or be considered a full-time student with the postdoc, won't she ?

You would think, and yet we can't document enrollment, for instance, and she's not working at an acredited institution of higher ed (she's at the NIH mothership).

I suspect you get the credit one way or another.

I would hope so but I would like to find some solid documentation on her status. Basically we could take the credit but can't really document why in case the IRS asks what we were thinking.

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Author: MarleysGhost Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61953 of 120820
Subject: Re: childcare credit Date: 11/7/2002 8:57 AM
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Just curious why you say her income is not earned?

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Author: HardyWeinberg Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61954 of 120820
Subject: Re: childcare credit Date: 11/7/2002 8:58 AM
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Just curious why you say her income is not earned?

Because it's reported on a 1099. If that assumption is wrong then maybe we're home free?

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Author: HardyWeinberg Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61955 of 120820
Subject: Re: childcare credit Date: 11/7/2002 9:20 AM
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Just curious why you say her income is not earned?

Here is some documentation against this being earned:

http://www.irs.gov/formspubs/page/0,,id%3D11117,00.html

Earned income does not include pensions or annuities, social security payments, workers' compensation, interest, dividends, or unemployment compensation. It also does not include scholarship or fellowship grants, except amounts paid to you (and reported on Form W-2) for teaching, research, or other services.

It's a fellowship for research purposes reported on a 1099. But it's not research dollars, it's entirely salary. Or salary-like.

and then on student status:

You are a full-time student if you are enrolled at and attend a school for the number of hours or classes that the school considers full time. You must have been a student for some part of each of 5 calendar months during the year.

We seem to lose because there is no enrollment.

I guess it's just that exclusion of research fellowships. Why did they stick that in there?

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Author: MarleysGhost Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61956 of 120820
Subject: Re: childcare credit Date: 11/7/2002 9:37 AM
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Ok, this may be the applicable section from IRS Publication 503 (page 6)...

"What is not earned income? Earned income does not include pensions or annuities, social security payments, workers' compensation, interest, dividends, or unemployment compensation. It also does not include scholarship or fellowship grants, except amounts paid to you (and reported on Form W-2) for teaching, research, or other services."

Note the specific mention of the W-2 form.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61960 of 120820
Subject: Re: childcare credit Date: 11/7/2002 11:29 AM
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My wife is a postdoctoral fellow and is paid by NIH on a 1099. Does that really mean we can't get the childcare credit on federal income taxes, since her income is not 'earned'?

Not at all. Her income is indeed earned. I would question the NIH reporting it to her on a 1099, however. Research and fellowship grants are typically reported as wages on form W2, not as a 1099. But either way, it is earned income and qualifies for the child care credit.

--Peter

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Author: MarleysGhost Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61961 of 120820
Subject: Re: childcare credit Date: 11/7/2002 11:58 AM
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Peter,

I'd agree that this is definitely "earned income". I'm curious as to your thoughts on why Pub. 503 mentions the W-2 form for scholarship, fellowship earnings in relation to teaching, research, etc. Earlier, in the discussion of earned income it specifically mentions self-employment income as coming under the definition of earned income. Obviously not all 1099 income is self-employment, but the institution seems to be claiming that there is independent contractor status here. If so, wouldn't the 1099 qualify as self-employment for purposes of claiming the credit? The definition of what is not earned income seems to want scholarship, fellowship income to be earned as an employee. So I wonder if it'd be prudent to investigate the nature of the employment, or if it really doesn't matter, and claim the credit as self-employed. I'm sure the 1099 income should be claimed on a Sch C to capture any expenses incurred in creation of this income.

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Author: HardyWeinberg Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61962 of 120820
Subject: Re: childcare credit Date: 11/7/2002 12:05 PM
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The definition of what is not earned income seems to want scholarship, fellowship income to be earned as an employee. So I wonder if it'd be prudent to investigate the nature of the employment, or if it really doesn't matter, and claim the credit as self-employed.

The rationale she was given by an adminstrator was that if the payment were reported on a w-2 then they would need to also withhold FICA, even though graduate stipends are also reported on w-2's w/o FICA withholding. NIH just found it easier to get around not withholding FICA by putting the income on a 1099. I don't think FICA is the criterion for whether income is earned or not, because the graduate stipend on a w-2 is earned, even though FICA is not withheld.

It's all very puzzling, and it would be easier to avoid the whole issue if I did have a flexible spending/medical savings acct but I don't.

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Author: MarleysGhost Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61963 of 120820
Subject: Re: childcare credit Date: 11/7/2002 12:26 PM
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Yes. This is an area that can become quite murky. Employment status issues.

from Circular E (Employer's Tax Guide)..."Generally, a worker who performs services for you is an employee if you can control what will be done and how it will be done. This is so even if you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed."

then later..."If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker...You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods after 1977."

So there are loopholes that will get the employer out of paying employment taxes even if the worker falls under the definition of an employee.

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61965 of 120820
Subject: Re: childcare credit Date: 11/7/2002 1:50 PM
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MarleysGhost writes (in part):

I'd agree that this is definitely "earned income". I'm curious as to your thoughts on why Pub. 503 mentions the W-2 form for scholarship, fellowship earnings in relation to teaching, research, etc.

I reply:

My guess is that the IRS intends to distinguish between "pure" financial aid for which the recipient need not work, which would not be earned income, and teaching and research fellowships, which are earned income. --Bob

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Author: ranger54 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61967 of 120820
Subject: Re: childcare credit Date: 11/7/2002 3:44 PM
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I have a number of questions/ comments about this issue:

1) Since you are a biologist (I am also and will finish my dissertation and defend in the next couple of months-yeah)I assume that Hardy Weinberg is not your name but refers to the equilibrium :-)

2) Do federal employees have to pay FICA at all? For some reason I thought that they didn't.

3) Is her income referred to as a 'stipend'. I think that stipends may carry slightly different rules for some issues.

4) Is your wife a) an independent postdoc researcher and received the grant herself or b) working for a P.I. who received the grant and pays her from it? Note: this question probably doesn't matter if the answer to #2 is 'No'.

Since she is a postdoc, I don't think that the money is considered education-related but it might be if it is a training grant.

These are some things that I thought, if clarified, might help some of the pros here give you a better answer.

Carson

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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61969 of 120820
Subject: Re: childcare credit Date: 11/7/2002 3:53 PM
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2) Do federal employees have to pay FICA at all? For some reason I thought that they didn't.

Federal employees used to be under CSRS - the Civil Service Retirement System - and did not play FICA. That changed some time ago (the mid 80s?) - federal employees hired since then have paid FICA.

Lorenzo,
happily retired from federal service and enjoying his CSRS annuity

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Author: HardyWeinberg Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61972 of 120820
Subject: Re: childcare credit Date: 11/7/2002 4:25 PM
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1) Since you are a biologist (I am also and will finish my dissertation and defend in the next couple of months-yeah)

Congrats! It's all downhill from there.

Just kidding.

3) Is her income referred to as a 'stipend'. I think that stipends may carry slightly different rules for some issues.

Yes it is a stipend.

4) Is your wife a) an independent postdoc researcher and received the grant herself or b) working for a P.I. who received the grant and pays her from it? Note: this question probably doesn't matter if the answer to #2 is 'No'.

Neither, but closer to B; it's an IRTA fellowship (intramural research training award) and I believe that each PI at NIH gets 2 IRTAs out of the base NIH budget.

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