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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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