Our understanding of the rules is that a stipend such as the one you described is not subject to social security taxes. That's because your stipend is an allowance that allows you to pay your bills while you're involved in your training, and is not compensation for services provided.

Unfortunately, the 1099 was not prepared accordingly. The amount of your stipend should have been reflected in box 3, other income. By putting your income in box 7, non-employee compensation, the payor is implying that your income should be subject to self-employment taxes.

You might hear from the IRS regarding this issue. If you do, simply explain your situation, and they should waive the additional taxes they assessed.

Keep in mind that your stipend is subject to federal and state taxes, however. You should be able to reduce the taxable amount of your stipend by direct expenses that you needed to pay.

Zip Code: cpa@mdtaxes.com